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Principal Business. Since 1972, Credit Acceptance Corporation (referred to as the “Company”, “Credit Acceptance”, “we”, “our” or “us”) has offered financing programs that enable automobile dealers to sell vehicles to consumers, regardless of their credit history. Our financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and from sales to customers responding to advertisements for our financing programs, but who actually end up qualifying for traditional financing.

Without our financing programs, consumers are often unable to purchase vehicles or they purchase unreliable ones. Further, as we report to the three national credit reporting agencies, an important ancillary benefit of our programs is that we provide consumers with an opportunity to improve their lives by improving their credit score and move on to more traditional sources of financing.

We refer to automobile dealers who participate in our programs and who share our commitment to changing consumers’ lives as “Dealers”. Upon enrollment in our financing programs, the Dealer enters into a Dealer servicing agreement with us that defines the legal relationship between Credit Acceptance and the Dealer. The Dealer servicing agreement assigns the responsibilities for administering, servicing, and collecting the amounts due on retail installment contracts (referred to as “Consumer Loans”) from the Dealers to us. We are an indirect lender from a legal perspective, meaning the Consumer Loan is originated by the Dealer and assigned to us.

Substantially all of the Consumer Loans assigned to us are made to consumers with impaired or limited credit histories. The following table shows the percentage of Consumer Loans assigned to us with either FICO ® scores below 650 or no FICO ® scores:

						For the Years Ended December 31,
Consumer Loan Assignment Volume						2020						2019						2018
Percentage of total unit volume with either FICO ® scores below 650 or no FICO ® scores						94.9		%				95.9		%				95.6		%

We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, we advance money to Dealers (referred to as a “Dealer Loan”) in exchange for the right to service the underlying Consumer Loans. Under the Purchase Program, we buy the Consumer Loans from the Dealers (referred to as a “Purchased Loan”) and keep all amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as “Loans”. The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last three years:

						Unit Volume												Dollar Volume (1)
For the Years Ended December 31,						Dealer Loans						Purchased Loans						Dealer Loans						Purchased Loans
2018						69.7		%				30.3		%				67.2		%				32.8		%
2019						67.2		%				32.8		%				64.3		%				35.7		%
2020						64.1		%				35.9		%				60.6		%				39.4		%

(1) Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program. Payments of Dealer Holdback (as defined below) and accelerated Dealer Holdback are not included.

Portfolio Program

As payment for the vehicle, the Dealer generally receives the following:

• a down payment from the consumer;

• a non-recourse cash payment (“advance”) from us; and

• after the advance balance (cash advance and related Dealer Loan fees and costs) has been recovered by us, the cash from payments made on the Consumer Loan, net of certain collection costs and our servicing fee (“Dealer Holdback”).

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We record the amount advanced to the Dealer as a Dealer Loan, which is classified within Loans receivable in our consolidated balance sheets. Cash advanced to the Dealer is automatically assigned to the Dealer’s open pool of advances. Prior to August 5, 2019, we generally required Dealers to group advances into pools of at least 100 Consumer Loans. Beginning August 5, 2019, Dealers may also elect to close a pool containing at least 50 Consumer Loans and assign subsequent advances to a new pool. Unless we receive a request from the Dealer to keep a pool open, we automatically close each pool based on the Dealer’s election. All advances within a Dealer’s pool are secured by the future collections on the related Consumer Loans assigned to the pool. For Dealers with more than one pool, the pools are cross-collateralized so the performance of other pools is considered in determining eligibility for Dealer Holdback. We perfect our security interest with respect to the Dealer Loans by obtaining control or taking possession of the Consumer Loans, which list us as lien holder on the vehicle title.

The Dealer servicing agreement provides that collections received by us during a calendar month on Consumer Loans assigned by a Dealer are applied on a pool-by-pool basis as follows:

• first, to reimburse us for certain collection costs;

• second, to pay us our servicing fee, which generally equals 20 % of collections;

• third, to reduce the aggregate advance balance and to pay any other amounts due from the Dealer to us; and

• fourth, to the Dealer as payment of Dealer Holdback.

If the collections on Consumer Loans from a Dealer’s pool are not sufficient to repay the advance balance and any other amounts due to us, the Dealer will not receive Dealer Holdback. Certain events may also result in Dealers forfeiting their rights to Dealer Holdback, including becoming inactive before assigning 100 Consumer Loans.

Dealers have an opportunity to receive an accelerated Dealer Holdback payment each time a pool of Consumer Loans is closed. The amount paid to the Dealer is calculated using a formula that considers the number of Consumer Loans assigned to the pool and the related forecasted collections and advance balance.

Since typically the combination of the advance and the consumer’s down payment provides the Dealer with a cash profit at the time of sale, the Dealer’s risk in the Consumer Loan is limited. We cannot demand repayment of the advance from the Dealer except in the event the Dealer is in default of the Dealer servicing agreement. Advances are made only after the consumer and Dealer have signed a Consumer Loan contract, we have received the executed Consumer Loan contract and supporting documentation in either physical or electronic form, and we have approved all of the related stipulations for funding.

For accounting purposes, the transactions described under the Portfolio Program are not considered to be loans to consumers. Instead, our accounting reflects that of a lender to the Dealer. The classification as a Dealer Loan for accounting purposes is primarily a result of (1) the Dealer’s financial interest in the Consumer Loan and (2) certain elements of our legal relationship with the Dealer.

Purchase Program

The Purchase Program differs from our Portfolio Program in that the Dealer receives a one-time payment from us at the time of assignment to purchase the Consumer Loan instead of a cash advance at the time of assignment and future Dealer Holdback payments. For accounting purposes, the transactions described under the Purchase Program are considered to be originated by the Dealer and then purchased by us.

Program Enrollment

Beginning August 5, 2019, Dealers may enroll in our Portfolio Program without incurring an enrollment fee. Prior to August 5, 2019, Dealers enrolled in our Portfolio Program by (1) paying an up-front, one-time fee of $ 9,850 , or (2) agreeing to allow us to retain 50 % of their accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments.

Access to the Purchase Program is typically only granted to Dealers that meet one of the following:

• assigned at least 100 Consumer Loans under the Portfolio Program;

• franchise dealership; or

• independent dealership that meets certain criteria upon enrollment.

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Principles of Consolidation

The consolidated financial statements include our accounts and our wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. Our primary subsidiaries as of December 31, 2020 are: Buyer’s Vehicle Protection Plan, Inc. (“BVPP”), Vehicle Remarketing Services, Inc. (“VRS”), VSC Re Company (“VSC Re”), CAC Warehouse Funding Corporation II, CAC Warehouse Funding LLC IV, CAC Warehouse Funding LLC V, CAC Warehouse Funding LLC VI, CAC Warehouse Funding LLC VII, CAC Warehouse Funding LLC VIII, Credit Acceptance Funding LLC 2017-3, Credit Acceptance Funding LLC 2018-1, Credit Acceptance Funding LLC 2018-2 and Credit Acceptance Funding LLC 2018-3, Credit Acceptance Funding LLC 2019-1, Credit Acceptance Funding LLC 2019-2, Credit Acceptance Funding LLC 2019-3, Credit Acceptance Funding LLC 2020-1, Credit Acceptance Funding LLC 2020-2 and Credit Acceptance Funding LLC 2020-3.

Business Segment Information

We currently operate in one reportable segment which represents our core business of offering financing programs that enable Dealers to sell vehicles to consumers regardless of their credit history. For information regarding our one reportable segment and related entity wide disclosures, see Note 15 to the consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The accounts which are subject to significant estimation include the allowance for credit losses, finance charge revenue, premiums earned, contingencies, and uncertain tax positions. Actual results could materially differ from those estimates.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

Cash equivalents consist of readily marketable securities with original maturities at the date of acquisition of three months or less. As of December 31, 2020 and 2019, we had $ 15.7 million and $ 186.1 million, respectively, in cash and cash equivalents that were not insured by the Federal Deposit Insurance Corporation (“FDIC”).

Restricted cash and cash equivalents consist of cash pledged as collateral for secured financings and cash held in a trust for future vehicle service contract claims. As of December 31, 2020 and 2019, we had $ 376.9 million and $ 326.7 million, respectively, in restricted cash and cash equivalents that were not insured by the FDIC.

The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents reported in our consolidated balance sheets to the total shown in our consolidated statements of cash flows:

(In millions)			As of December 31,
			2020						2019						2018
Cash and cash equivalents			$	16.0					$	187.4					$	25.7
Restricted cash and cash equivalents			380.2						330.3						303.6
Total cash and cash equivalents and restricted cash and cash equivalents			$	396.2					$	517.7					$	329.3

Restricted Securities Available for Sale

Restricted securities available for sale consist of amounts held in a trust for future vehicle service contract claims. We determine the appropriate classification of our investments in debt securities at the time of purchase and reevaluate such determinations at each balance sheet date. Debt securities for which we do not have the intent or ability to hold to maturity are classified as available for sale, and stated at fair value with unrealized gains and losses, net of income taxes included in the determination of comprehensive income and reported as a component of shareholders’ equity.

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Loans Receivable and Allowance for Credit Losses

Consumer Loan Assignment. For legal purposes, a Consumer Loan is considered to have been assigned to us after the following has occurred:

• the consumer and Dealer have signed a Consumer Loan contract; and

• we have received the executed Consumer Loan contract and supporting documentation in either physical or electronic form.

For accounting and financial reporting purposes, a Consumer Loan is considered to have been assigned to us after the following has occurred:

• the Consumer Loan has been legally assigned to us; and

• we have made a funding decision and generally have provided funding to the Dealer in the form of either an advance under the Portfolio Program or one-time purchase payment under the Purchase Program.

Portfolio Segments and Classes. Our Loan portfolio consists of two portfolio segments: Dealer Loans and Purchased Loans. Our determination is based on the following:

• We have two financing programs: the Portfolio Program and the Purchase Program. We are considered to be a lender to our Dealers for Consumer Loans assigned under the Portfolio Program and a purchaser of Consumer Loans assigned under the Purchase Program.

• The Portfolio Program and the Purchase Program have different levels of risk in relation to credit losses. Under the Portfolio Program, the impact of negative variances in Consumer Loan performance is mitigated by Dealer Holdback and the cross-collateralization of Consumer Loan assignments. Under the Purchase Program, we are impacted by the full amount of negative variances in Consumer Loan performance.

• Our business model is narrowly focused on Consumer Loan assignments from one industry with expected cash flows that are significantly lower than the contractual cash flows owed to us due to credit quality. We do not believe that it is meaningful to disaggregate our Loan portfolio beyond the Dealer Loans and Purchased Loans portfolio segments.

Each portfolio segment consists of one class of Consumer Loan assignments, which is Consumer Loans originated by Dealers to finance purchases of vehicles and related ancillary products by consumers with impaired or limited credit histories. Our determination is based on the following:

• All of the Consumer Loans assigned to us have similar risk characteristics in relation to the categorization of borrowers, type of financing receivable, industry sector and type of collateral.

• We only accept Consumer Loan assignments from Dealers located within the United States.

2020 Recognition and Measurement Policies. On January 1, 2020, we adopted Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, which is known as the current expected credit loss model, or CECL. Loans outstanding prior to the adoption date qualified for transition relief and are accounted for as purchased financial assets with credit deterioration (“PCD Method”).

Under the PCD Method, on January 1, 2020, we:

• calculated an effective interest rate based on expected future net cash flows; and

• increased the Loans receivable and the related allowance for credit losses balances by the present value of the difference between contractual future net cash flows and expected future net cash flows discounted at the effective interest rate. This “gross-up” did not impact the net carrying amount of Loans (Loans receivable less allowance for credit losses) or net income.

Under the PCD Method, for each reporting period subsequent to our adoption of CECL, we:

• recognize finance charge revenue using the effective interest rate that was calculated on the adoption date based on expected future net cash flows; and

• adjust the allowance for credit losses so that the net carrying amount of each Loan equals the present value of expected future net cash flows discounted at the effective interest rate. The adjustment to the allowance for credit losses is recognized as either provision for credit losses expense or a reversal of provision for credit losses expense.

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Consumer Loans assigned to us subsequent to December 31, 2019 do not qualify for the PCD Method and are accounted for as originated financial assets (“Originated Method”). While the cash flows we expect to collect at the time of assignment are significantly lower than the contractual cash flows owed to us due to credit quality, our Loans do not qualify for the PCD Method because the assignment of the Consumer Loan to us occurs a moment after the Consumer Loan is originated by the Dealer, so “a more-than-insignificant deterioration in credit quality since origination” has not occurred at the time of assignment. In addition, Dealer Loans also do not qualify for the PCD Method because Consumer Loans assigned to us under the Portfolio Program are considered to be advances under Dealer Loans originated by us rather than Consumer Loans purchased by us.

Under the Originated Method, at the time of assignment, we:

• calculate the effective interest rate based on contractual future net cash flows;

• record a Loan receivable equal to the advance paid to the Dealer under the Portfolio Program or purchase price paid to the Dealer under the Purchase Program; and

• record an allowance for credit losses equal to the difference between the initial Loan receivable balance and the present value of expected future net cash flows discounted at the effective interest rate. The initial allowance for credit losses is recognized as provision for credit losses expense.

Under the Originated Method, for each reporting period subsequent to assignment, we:

• recognize finance charge revenue using the effective interest rate that was calculated at the time of assignment based on contractual future net cash flows; and

• adjust the allowance for credit losses so that the net carrying amount of each Loan equals the present value of expected future net cash flows discounted at the effective interest rate. The adjustment to the allowance for credit losses is recognized as either provision for credit losses expense or a reversal of provision for credit losses expense.

2019 and 2018 Recognition and Measurement Policies. Prior to the adoption of CECL on January 1, 2020, we accounted for our Loans as loans acquired with significant credit deterioration.

At the time of assignment, we:

• calculated an effective interest rate based on expected future net cash flows; and

• recorded a Loan receivable equal to the advance paid to the Dealer under the Portfolio Program or purchase price paid to the Dealer under the Purchase Program.

For each reporting period subsequent to assignment, we:

• recalculated an effective interest rate based on expected future net cash flows;

• recognized finance charge revenue using the greater of the effective interest rate that was calculated for the reporting period or the effective interest rate that was calculated at the time of assignment, both of which were based on expected future net cash flows; and

• recorded or adjusted an allowance for credit losses, if necessary, to reduce the net carrying amount of each Loan to the present value of expected future net cash flows discounted at the effective interest rate that was calculated at the time of assignment. The initial allowance for credit losses was recognized as provision for credit losses expense and the adjustment to the allowance for credit losses was recognized as either provision for credit losses expense or a reversal of provision for credit losses expense.

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Loans Receivable . Amounts advanced to Dealers for Consumer Loans assigned under the Portfolio Program are recorded as Dealer Loans and are aggregated by Dealer for purposes of recognizing revenue and measuring credit losses. Amounts paid to Dealers for Consumer Loans assigned under the Purchase Program are recorded as Purchased Loans and, for purposes of recognizing revenue and measuring credit losses, are:

• not aggregated, if assigned subsequent to December 31, 2019; or

• aggregated into pools based on the month of purchase, if assigned prior to January 1, 2020.

The outstanding balance of each Loan included in Loans receivable is comprised of the following:

• cash paid to the Dealer (or to third party ancillary product providers on the Dealer’s behalf) for the Consumer Loan assignment (advance under the Portfolio Program or one-time purchase payment under the Purchase Program);

• finance charges;

• Dealer Holdback payments;

• accelerated Dealer Holdback payments;

• recoveries;

• transfers in;

• less: collections (net of certain collection costs);

• less: write-offs; and

• less: transfers out.

Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance and the related allowance for credit losses balance to Purchased Loans in the period this forfeiture occurs. We aggregate these Purchased Loans by Dealer for purposes of recognizing revenue and measuring credit losses.

Allowance for Credit Losses. The outstanding balance of the allowance for credit losses of each Loan represents the amount required to reduce net carrying amount of Loans (Loans receivable less allowance for credit losses) to the present value of expected future net cash flows discounted at the effective interest rate. Expected future net cash flows for Dealer Loans are comprised of expected future collections on the assigned Consumer Loans, less any expected future Dealer Holdback payments. Expected future net cash flows for Purchased Loans are comprised of expected future collections on the assigned Consumer Loans.

Expected future collections are forecasted for each individual Consumer Loan based on the historical performance of Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns and economic conditions. Our forecast of expected future collections includes estimates for prepayments and post-contractual-term cash flows. Unless the consumer is no longer contractually obligated to pay us, we forecast future collections on each Consumer Loan for a 120 month period after the origination date. Expected future Dealer Holdback payments are forecasted for each individual Dealer based on the expected future collections and current advance balance of each Dealer Loan.

We fully write off the outstanding balances of a Loan and the related allowance for credit losses once we are no longer forecasting any expected future net cash flows on the Loan. In addition, on January 1, 2020, we adopted a partial write-off policy in connection with our adoption of CECL. Under our partial write-off policy, we write off the amount of the outstanding balances of a Loan and the related allowance for credit losses, if any, that exceeds 200% of the present value of expected future net cash flows on the Loan, as we deem this amount to be uncollectable.

Credit Quality. Substantially all of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories. Consumer Loans made to these individuals generally entail a higher risk of delinquency, default and repossession and higher losses than loans made to consumers with better credit. Since most of our revenue and cash flows are generated from these Consumer Loans, our ability to accurately forecast Consumer Loan performance is critical to our business and financial results. At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on these forecasts, an advance or one-time purchase payment is made to the related Dealer at a price designed to maximize our economic profit, a non-GAAP financial measure that considers our return on capital, our cost of capital and the amount of capital invested.

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We monitor and evaluate the credit quality of Consumer Loans on a monthly basis by comparing our current forecasted collection rates to our initial expectations. We use a statistical model that considers a number of credit quality indicators to estimate the expected collection rate for each Consumer Loan at the time of assignment. The credit quality indicators considered in our model include attributes contained in the consumer’s credit bureau report, data contained in the consumer’s credit application, the structure of the proposed transaction, vehicle information and other factors. We continue to evaluate the expected collection rate of each Consumer Loan subsequent to assignment primarily through the monitoring of consumer payment behavior. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast.  Since all known, significant credit quality indicators have already been factored into our forecasts and pricing, we are not able to use any specific credit quality indicators to predict or explain variances in actual performance from our initial expectations. Any variances in performance from our initial expectations are the result of Consumer Loans performing differently from historical Consumer Loans with similar characteristics. We periodically adjust our statistical pricing model for new trends that we identify through our evaluation of these forecasted collection rate variances.

When overall forecasted collection rates underperform our initial expectations, the decline in forecasted collections has a more adverse impact on the profitability of the Purchased Loans than on the profitability of the Dealer Loans. For Purchased Loans, the decline in forecasted collections is absorbed entirely by us. For Dealer Loans, the decline in the forecasted collections is substantially offset by a decline in forecasted payments of Dealer Holdback.

Methodology Changes. On January 1, 2020, we adopted CECL, which changed our accounting policies for Loans. During the first quarter of 2020, we reduced forecasted collection rates to reflect the estimated long-term impact of COVID-19 on Consumer Loan performance. For additional information, see New Accounting Updates Adopted During the Current Year below and Note 5. For the three year period ended December 31, 2020, we did not make any other methodology changes for Loans that had a material impact on our financial statements.

Property and Equipment

Purchases of property and equipment are recorded at cost. Depreciation is provided on a straight-line basis over the estimated useful life of the asset. Estimated useful lives are generally as follows: buildings – 40 years , building improvements – 10 years , data processing equipment – 3 years , software – 5 years , office furniture and equipment – 7 years , and leasehold improvements – the lesser of the lease term or 7 years . The cost of assets sold or retired and the related accumulated depreciation are removed from the balance sheet at the time of disposition and any resulting gain or loss is included in operations. Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and improvements are capitalized. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Costs incurred during the application development stage of software developed for internal use are capitalized and generally depreciated on a straight-line basis over five years . Costs incurred to maintain existing software are expensed as incurred. For additional information regarding our property and equipment, see Note 6 to the consolidated financial statements.

Deferred Debt Issuance Costs

Deferred debt issuance costs associated with secured financings and senior notes are included as a deduction from the carrying amount of the related debt liability, and deferred debt issuance costs associated with our revolving secured line of credit are included in other assets. Expenses associated with the issuance of debt instruments are capitalized and amortized as interest expense over the term of the debt instrument using the effective interest method for asset-backed secured financings (“Term ABS”) and senior notes and the straight-line method for lines of credit and revolving secured warehouse (“Warehouse”) facilities. For additional information regarding deferred debt issuance costs, see Note 9 to the consolidated financial statements.

Derivative Instruments

We rely on various sources of financing, some of which contain floating rates of interest and expose us to risks associated with increases in interest rates. We manage such risk primarily by entering into interest rate cap agreements (“derivative instruments”). These derivative instruments are not designated as hedges, and changes in their fair value increase or decrease interest expense.

We recognize derivative instruments as either other assets or accounts payable and accrued liabilities on our consolidated balance sheets. For additional information regarding our derivative instruments, see Note 10 to the consolidated financial statements.

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Finance Charges

Sources of Revenue. Finance charges is comprised of: (1) interest income earned on Loans; (2) administrative fees earned from ancillary products; (3) program fees charged to Dealers under the Portfolio Program; (4) Consumer Loan assignment fees charged to Dealers; and (5) direct origination costs incurred on Dealer Loans.

We provide Dealers the ability to offer vehicle service contracts to consumers through our relationships with Third Party Providers (“TPPs”). A vehicle service contract provides the consumer protection by paying for the repair or replacement of certain components of the vehicle in the event of a mechanical failure. The retail price of the vehicle service contract is included in the principal balance of the Consumer Loan. The wholesale cost of the vehicle service contract is paid to the TPP, net of an administrative fee retained by us. The difference between the wholesale cost and the retail price to the consumer is paid to the Dealer as a commission. Under the Portfolio Program, the wholesale cost of the vehicle service contract and the commission paid to the Dealer are charged to the Dealer’s advance balance. TPPs process claims on vehicle service contracts that are underwritten by third party insurers. We bear the risk of loss for claims on certain vehicle service contracts that are reinsured by us. We market the vehicle service contracts directly to our Dealers.

We provide Dealers the ability to offer Guaranteed Asset Protection (“GAP”) to consumers through our relationships with TPPs. GAP provides the consumer protection by paying the difference between the loan balance and the amount covered by the consumer’s insurance policy in the event of a total loss of the vehicle due to severe damage or theft. The retail price of GAP is included in the principal balance of the Consumer Loan. The wholesale cost of GAP is paid to the TPP, net of an administrative fee retained by us. The difference between the wholesale cost and the retail price to the consumer is paid to the Dealer as a commission. Under the Portfolio Program, the wholesale cost of GAP and the commission paid to the Dealer are charged to the Dealer’s advance balance. TPPs process claims on GAP contracts that are underwritten by third party insurers.

Program fees represent monthly fees charged to Dealers for access to our Credit Approval Processing System (“CAPS”); administration, servicing and collection services offered by us; documentation related to or affecting our program; and all tangible and intangible property owned by Credit Acceptance. We charge a monthly fee of $ 599 to Dealers participating in our Portfolio Program and we collect it from future Dealer Holdback payments.

Recognition Policy. We recognize finance charges under the interest method such that revenue is recognized on a level-yield basis over the life of the Loan. We calculate finance charges on a monthly basis by applying the effective interest rate of the Loan to the net carrying amount of the Loan (Loan receivable less the related allowance for credit losses). For Consumer Loans assigned subsequent to December 31, 2019, the effective interest rate is based on contractual future net cash flows. For Consumer Loans assigned prior to January 1, 2020, the effective interest rate was determined based on expected future net cash flows.

In connection with our adoption of CECL on January 1, 2020, we have elected to report the change in the present value of credit losses attributable to the passage of time as a reduction to finance charges. As a result, for financial statement periods beginning after December 31, 2019, we allocate finance charges recognized on each Loan between the Loan receivable and the related allowance for credit losses. The amount of finance charges allocated to the Loan receivable is equal to the effective interest rate applied to the Loans receivable balance. The reduction of finance charges allocated to the allowance for credit losses is equal to the effective interest rate applied to the allowance for credit losses balance. For financial statement periods beginning prior to January 1, 2020, the entire amount of finance charges recognized on each Loan was allocated to the Loan receivable.

Reinsurance

VSC Re, our wholly-owned subsidiary, is engaged in the business of reinsuring coverage under vehicle service contracts sold to consumers by Dealers on vehicles financed by us. VSC Re currently reinsures vehicle service contracts that are offered through one of our TPPs. Vehicle service contract premiums, which represent the selling price of the vehicle service contract to the consumer, less fees and certain administrative costs, are contributed to a trust account controlled by VSC Re. These premiums are used to fund claims covered under the vehicle service contracts. VSC Re is a bankruptcy remote entity. As such, our exposure to fund claims is limited to the trust assets controlled by VSC Re and our net investment in VSC Re.

Premiums from the reinsurance of vehicle service contracts are recognized over the life of the policy in proportion to expected costs of servicing those contracts. Expected costs are determined based on our historical claims experience. Claims are expensed through a provision for claims in the period the claim was incurred. Capitalized acquisition costs are comprised of premium taxes and are amortized as general and administrative expense over the life of the contracts in proportion to premiums earned.

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We have consolidated the trust within our financial statements based on our determination of the following:

• We have a variable interest in the trust. We have a residual interest in the assets of the trust, which is variable in nature, given that it increases or decreases based upon the actual loss experience of the related service contracts. In addition, VSC Re is required to absorb any losses in excess of the trust’s assets.

• The trust is a variable interest entity. The trust has insufficient equity at risk as no parties to the trust were required to contribute assets that provide them with any ownership interest.

• We are the primary beneficiary of the trust. We control the amount of premiums written and placed in the trust through Consumer Loan assignments under our Programs, which is the activity that most significantly impacts the economic performance of the trust. We have the right to receive benefits from the trust that could potentially be significant. In addition, VSC Re has the obligation to absorb losses of the trust that could potentially be significant.

Stock-Based Compensation Plans

We have stock-based compensation plans for team members and non-employee directors, which are described more fully in Note 14 to the consolidated financial statements. We apply a fair-value-based measurement method in accounting for stock-based compensation plans and recognize stock-based compensation expense over the requisite service period of the grant as salaries and wages expense.

Employee Benefit Plan

We sponsor a 401(k) plan that covers substantially all of our team members. We offer matching contributions to the 401(k) plan based on each enrolled team members’ eligible annual gross pay (subject to statutory limitations). Our matching contribution rate is equal to 100 % of the first 4 % participants contribute and an additional 50 % of the next 2 % participants contribute, for a maximum matching contribution of 5 % of each participant’s eligible annual gross pay. For the years ended December 31, 2020, 2019 and 2018, we recognized compensation expense of $ 7.2 million, $ 7.1 million, and $ 5.3 million, respectively, for our matching contributions to the plan.

Income Taxes

Provisions for federal, state and foreign income taxes are calculated on reported pre-tax earnings based on current tax law and also include, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

We follow a two-step approach for recognizing uncertain tax positions. First, we evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more-likely-than-not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, for positions that we determine are more-likely-than-not to be sustained, we recognize the tax benefit as the largest benefit that has a greater than 50 % likelihood of being sustained. We establish a reserve for uncertain tax positions liability that is comprised of unrecognized tax benefits and related interest. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. We recognize interest and penalties related to uncertain tax positions in provision for income taxes. For additional information regarding our income taxes, see Note 11 to the consolidated financial statements.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were $ 0.1 million for the year ended December 31, 2020, $ 0.3 million for the year ended December 31, 2019 and $ 0.2 million for the year ended December 31, 2018.

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New Accounting Updates Adopted During the Current Year

Accounting for Costs of Implementing Cloud Computing. In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, which reduces complexity in the accounting for costs of implementing a cloud computing service arrangement. This standard aligns the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. Under the current guidance, the classification of an arrangement as either a software license or a service contract determines whether or not we capitalize implementation costs. If an arrangement meets the definition of a software license, implementation costs are capitalized. If an arrangement meets the definition of a service contract, implementation costs are expensed as incurred. Under the new guidance, implementation costs will be capitalized regardless of their classification. The adoption of ASU 2018-15 on January 1, 2020 changed how we account for our cloud computing arrangements. However, its adoption did not have a material impact on our consolidated financial statements and related disclosures.

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU 2016-13, which included an allowance for credit losses model known as the current expected credit loss model, or CECL, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for credit losses based on the difference between contractual future net cash flows and its estimate of expected future net cash flows. The new guidance also changed the scope of the special accounting for loans acquired with significant credit deterioration. Our adoption of ASU 2016-13 on January 1, 2020 had a material impact on our consolidated financial statements and related disclosures, as it changed our accounting policies for Loans.

Upon adoption of CECL on January 1, 2020, we increased both our Loans receivable and the related allowance for credit losses balances by $ 2,463.6 million. This gross-up did not impact the net carrying amount of Loans (Loans receivable less allowance for credit losses) or net income. This gross-up also reflected the impact of our adoption of a partial write-off policy on January 1, 2020 in connection with our adoption of CECL.

The net Loan income (finance charge revenue less provision for credit losses expense) that we will recognize over the life of a Loan equals the cash we collect from the underlying Consumer Loan less the cash we pay to the Dealer. While the total amount of net Loan income we will recognize over the life of the Loan is not impacted by CECL, the timing of when we will recognize this income changes significantly from our prior accounting method, as CECL requires us to recognize a significant provision for credit losses expense at the time of assignment for amounts we never expected to realize and finance charge revenue in subsequent periods that significantly exceeds our expected yields. Given the significant change in timing of net Loan income recognition, net income for the year ending December 31, 2020 was significantly lower under CECL than what would have been reported under our prior accounting method, with the greatest impact occurring in the quarter of adoption. For the year ended December 31, 2020, we recognized $ 518.6 million provision for credit losses on new Consumer Loan assignments related to our adoption of CECL on January 1, 2020, which reduced consolidated net income by $ 399.3 million, or $ 22.26 per diluted share. The financial statement impact of CECL in any period will depend on Consumer Loan assignment volume and the percentage of Consumer Loans assigned to us as Purchased Loans, the size and composition of our Loan portfolio, the Loan portfolio’s credit quality and economic conditions.

New Accounting Update Not Yet Adopted

Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU 2019-12, which intends to enhance and simplify various aspects of the income tax accounting guidance, including requirements impacting the allocation of income tax expense to certain legal entities and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for fiscal years, and interim periods, beginning after December 15, 2020. Early application is permitted, but we have not yet adopted ASU 2019-12. We do not believe that the adoption of ASU 2019-12 will have a material impact on our consolidated financial statements and related disclosures.

Subsequent Events

We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of December 31, 2020 for items that could potentially be recognized or disclosed in these financial statements. For additional information regarding subsequent events, see Note 18 to the consolidated financial statements.

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The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate their value.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents. The carrying amounts approximate their fair value due to the short maturity of these instruments.

Restricted Securities Available for Sale. The fair value of U.S. Government and agency securities and corporate bonds is based on quoted market values in active markets.  For asset-backed securities, mortgage-backed securities and commercial paper we use model-based valuation techniques for which all significant assumptions are observable in the market.

Loans Receivable, net. The fair value is determined by calculating the present value of expected future net cash flows estimated by us utilizing a discount rate comparable with the rate used to calculate the value of our Loans under our non-GAAP floating yield methodology.

Revolving Secured Line of Credit. The fair value is determined by calculating the present value of the debt instrument based on current rates for debt with a similar risk profile and maturity.

Secured Financing. The fair value of our Term ABS financings is determined using quoted market prices; however, these instruments trade in a market with a low trading volume.  For our warehouse facilities, the fair values are determined by calculating the present value of each debt instrument based on current rates for debt with similar risk profiles and maturities.

Senior Notes. The fair value is determined using quoted market prices in an active market.

Mortgage Note. The fair value is determined by calculating the present value of the debt instrument based on current rates

for debt with a similar risk profile and maturity.

A comparison of the carrying amount and estimated fair value of these financial instruments is as follows:

(In millions)			As of December 31,
			2020												2019
			Carrying Amount						Estimated Fair Value						Carrying Amount						Estimated Fair Value
Assets
Cash and cash equivalents			$	16.0					$	16.0					$	187.4					$	187.4
Restricted cash and cash equivalents			380.2						380.2						330.3						330.3
Restricted securities available for sale			66.1						66.1						59.3						59.3
Loans receivable, net			6,787.9						7,216.4						6,685.2						6,777.2
Liabilities
Revolving secured line of credit			$	95.9					$	95.9					$	—					$	—
Secured financing			3,711.6						3,793.9						3,339.7						3,397.5
Senior notes			790.6						842.0						1,187.8						1,257.6
Mortgage note			10.5						10.5						11.3						11.3

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Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  We group assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  These levels are:

Level 1    Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2    Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3    Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market.  These unobservable assumptions reflect estimates or assumptions that market participants would use in pricing the asset or liability.

The following table provides the level of measurement used to determine the fair value for each of our financial instruments measured or disclosed at fair value:

(In millions)			As of December 31, 2020
			Level 1						Level 2						Level 3						Total Fair Value
Assets
Cash and cash equivalents (1)			$	16.0					$	—					$	—					$	16.0
Restricted cash and cash equivalents (1)			380.2						—						—						380.2
Restricted securities available for sale (2)			52.8						13.3						—						66.1
Loans receivable, net (1)			—						—						7,216.4						7,216.4
Liabilities
Revolving secured line of credit (1)			$	—					$	95.9					$	—					$	95.9
Secured financing (1)			—						3,793.9						—						3,793.9
Senior notes (1)			842.0						—						—						842.0
Mortgage note (1)			—						10.5						—						10.5
(In millions)			As of December 31, 2019
			Level 1						Level 2						Level 3						Total Fair Value
Assets
Cash and cash equivalents (1)			$	187.4					$	—					$	—					$	187.4
Restricted cash and cash equivalents (1)			330.3						—						—						330.3
Restricted securities available for sale (2)			47.5						11.8						—						59.3
Loans receivable, net (1)			—						—						6,777.2						6,777.2
Liabilities
Revolving secured line of credit (1)			$	—					$	—					$	—					$	—
Secured financing (1)			—						3,397.5						—						3,397.5
Senior notes (1)			1,257.6						—						—						1,257.6
Mortgage note (1)			—						11.3						—						11.3

(1) Measured at amortized cost with fair value disclosed.

(2) Measured at fair value on a recurring basis.

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Restricted securities available for sale consist of the following:

(In millions)			As of December 31, 2020
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
Corporate bonds			$	31.3					$	1.1					$	—					$	32.4
U.S. Government and agency securities			19.7						0.7						—						20.4
Asset-backed securities			12.7						0.2						—						12.9
Mortgage-backed securities			0.4						—						—						0.4
Total restricted securities available for sale			$	64.1					$	2.0					$	—					$	66.1
(In millions)			As of December 31, 2019
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
Corporate bonds			$	25.3					$	0.5					$	—					$	25.8
U.S. Government and agency securities			21.3						0.4						—						21.7
Asset-backed securities			11.2						0.1						—						11.3
Mortgage-backed securities			0.5						—						—						0.5
Total restricted securities available for sale			$	58.3					$	1.0					$	—					$	59.3

The fair value and gross unrealized losses for restricted securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

(In millions)			Securities Available for Sale with Gross Unrealized Losses as of December 31, 2020
			Less than 12 Months												12 Months or More
			Estimated Fair Value						Gross Unrealized Losses						Estimated Fair Value						Gross Unrealized Losses						Total Estimated Fair Value						Total Gross Unrealized Losses
Corporate bonds			$	2.2					$	—					$	—					$	—					$	2.2					$	—
U.S. Government and agency securities			—						—						—						—						—						—
Asset-backed securities			—						—						—						—						—						—
Mortgage-backed securities			—						—						—						—						—						—
Total restricted securities available for sale			$	2.2					$	—					$	—					$	—					$	2.2					$	—

(In millions)			Securities Available for Sale with Gross Unrealized Losses as of December 31, 2019
			Less than 12 Months												12 Months or More
			Estimated Fair Value						Gross Unrealized Losses						Estimated Fair Value						Gross Unrealized Losses						Total Estimated Fair Value						Total Gross Unrealized Losses
Corporate bonds			$	1.4					$	—					$	—					$	—					$	1.4					$	—
U.S. Government and agency securities			1.9						—						—						—						1.9						—
Asset-backed securities			1.9						—						—						—						1.9						—
Mortgage-backed securities			—						—						—						—						—						—
Total restricted securities available for sale			$	5.2					$	—					$	—					$	—					$	5.2					$	—

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The cost and estimated fair values of debt securities by contractual maturity were as follows (securities with multiple maturity dates are classified in the period of final maturity).  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In millions)						As of December 31,
						2020												2019
Contractual Maturity						Amortized Cost						Estimated Fair Value						Amortized Cost						Estimated Fair Value
Within one year						$	1.1					$	1.1					$	5.7					$	5.7
Over one year to five years						58.1						60.0						50.8						51.8
Over five years to ten years						4.7						4.8						1.5						1.5
Over ten years						0.2						0.2						0.3						0.3
Total restricted securities available for sale						$	64.1					$	66.1					$	58.3					$	59.3

Loans receivable and allowance for credit losses consist of the following:

(In millions)			As of December 31, 2020
			Dealer Loans						Purchased Loans						Total
Loans receivable			$	5,869.6					$	4,255.2					$	10,124.8
Allowance for credit losses			( 1,702.1 )						( 1,634.8 )						( 3,336.9 )
Loans receivable, net			$	4,167.5					$	2,620.4					$	6,787.9
(In millions)			As of December 31, 2019
			Dealer Loans						Purchased Loans						Total
Loans receivable			$	4,623.3					$	2,597.9					$	7,221.2
Allowance for credit losses			( 428.0 )						( 108.0 )						( 536.0 )
Loans receivable, net			$	4,195.3					$	2,489.9					$	6,685.2

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A summary of changes in Loans receivable and allowance for credit losses is as follows:

(In millions)			For the Year Ended December 31, 2020
			Loans Receivable																		Allowance for Credit Losses																		Loans Receivable, Net
			Dealer Loans						Purchased Loans						Total						Dealer Loans						Purchased Loans						Total						Dealer Loans						Purchased Loans						Total
Balance, beginning of period			$	4,623.3					$	2,597.9					$	7,221.2					$	( 428.0 )					$	( 108.0 )					$	( 536.0 )					$	4,195.3					$	2,489.9					$	6,685.2
Adoption of CECL (1)			940.2						1,523.4						2,463.6						( 940.2 )						( 1,523.4 )						( 2,463.6 )						—						—						—
Finance charges			1,313.9						991.0						2,304.9						( 368.0 )						( 374.5 )						( 742.5 )						945.9						616.5						1,562.4
Provision for credit losses			—						—						—						( 239.7 )						( 317.2 )						( 556.9 )						( 239.7 )						( 317.2 )						( 556.9 )
New Consumer Loan assignments (2)			2,207.8						1,433.4						3,641.2						—						—						—						2,207.8						1,433.4						3,641.2
Collections (3)			( 3,059.1 )						( 1,682.3 )						( 4,741.4 )						—						—						—						( 3,059.1 )						( 1,682.3 )						( 4,741.4 )
Accelerated Dealer Holdback payments			45.9						—						45.9						—						—						—						45.9						—						45.9
Dealer Holdback payments			142.6						—						142.6						—						—						—						142.6						—						142.6
Transfers (4)			( 119.8 )						119.8						—						39.7						( 39.7 )						—						( 80.1 )						80.1						—
Write-offs			( 235.1 )						( 729.8 )						( 964.9 )						235.1						729.8						964.9						—						—						—
Recoveries (5)			1.0						1.8						2.8						( 1.0 )						( 1.8 )						( 2.8 )						—						—						—
Deferral of Loan origination costs			8.9						—						8.9						—						—						—						8.9						—						8.9
Balance, end of period			$	5,869.6					$	4,255.2					$	10,124.8					$	( 1,702.1 )					$	( 1,634.8 )					$	( 3,336.9 )					$	4,167.5					$	2,620.4					$	6,787.9

(In millions)			For the Year Ended December 31, 2019
			Loans Receivable																		Allowance for Credit Losses																		Loans Receivable, Net
			Dealer Loans						Purchased Loans						Total						Dealer Loans						Purchased Loans						Total						Dealer Loans						Purchased Loans						Total
Balance, beginning of period			$	4,141.0					$	2,084.2					$	6,225.2					$	( 378.1 )					$	( 83.8 )					$	( 461.9 )					$	3,762.9					$	2,000.4					$	5,763.3
Finance charges			888.7						480.7						1,369.4						—						—						—						888.7						480.7						1,369.4
Provision for credit losses			—						—						—						( 65.9 )						( 10.5 )						( 76.4 )						( 65.9 )						( 10.5 )						( 76.4 )
New Consumer Loan assignments (2)			2,424.5						1,347.7						3,772.2						—						—						—						2,424.5						1,347.7						3,772.2
Collections (3)			( 2,947.0 )						( 1,402.5 )						( 4,349.5 )						—						—						—						( 2,947.0 )						( 1,402.5 )						( 4,349.5 )
Accelerated Dealer Holdback payments			58.8						—						58.8						—						—						—						58.8						—						58.8
Dealer Holdback payments			138.5						—						138.5						—						—						—						138.5						—						138.5
Transfers (4)			( 87.2 )						87.2						—						13.1						( 13.1 )						—						( 74.1 )						74.1						—
Write-offs			( 4.4 )						( 0.5 )						( 4.9 )						4.4						0.5						4.9						—						—						—
Recoveries (5)			1.5						1.1						2.6						( 1.5 )						( 1.1 )						( 2.6 )						—						—						—
Deferral of Loan origination costs			8.9						—						8.9						—						—						—						8.9						—						8.9
Balance, end of period			$	4,623.3					$	2,597.9					$	7,221.2					$	( 428.0 )					$	( 108.0 )					$	( 536.0 )					$	4,195.3					$	2,489.9					$	6,685.2

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(In millions)			For the Year Ended December 31, 2018
			Loans Receivable																		Allowance for Credit Losses																		Loans Receivable, Net
			Dealer Loans						Purchased Loans						Total						Dealer Loans						Purchased Loans						Total						Dealer Loans						Purchased Loans						Total
Balance, beginning of period			$	3,518.1					$	1,530.9					$	5,049.0					$	( 366.0 )					$	( 63.4 )					$	( 429.4 )					$	3,152.1					$	1,467.5					$	4,619.6
Finance charges			807.5						369.3						1,176.8						—						—						—						807.5						369.3						1,176.8
Provision for credit losses			—						—						—						( 48.0 )						( 8.9 )						( 56.9 )						( 48.0 )						( 8.9 )						( 56.9 )
New Consumer Loan assignments (2)			2,414.8						1,181.0						3,595.8						—						—						—						2,414.8						1,181.0						3,595.8
Collections (3)			( 2,689.3 )						( 1,073.0 )						( 3,762.3 )						—						—						—						( 2,689.3 )						( 1,073.0 )						( 3,762.3 )
Accelerated Dealer Holdback payments			52.6						—						52.6						—						—						—						52.6						—						52.6
Dealer Holdback payments			128.9						—						128.9						—						—						—						128.9						—						128.9
Transfers (4)			( 78.2 )						78.2						—						13.7						( 13.7 )						—						( 64.5 )						64.5						—
Write-offs			( 25.2 )						( 3.4 )						( 28.6 )						25.2						3.4						28.6						—						—						—
Recoveries (5)			3.0						1.2						4.2						( 3.0 )						( 1.2 )						( 4.2 )						—						—						—
Deferral of Loan origination costs			8.8						—						8.8						—						—						—						8.8						—						8.8
Balance, end of period			$	4,141.0					$	2,084.2					$	6,225.2					$	( 378.1 )					$	( 83.8 )					$	( 461.9 )					$	3,762.9					$	2,000.4					$	5,763.3

(1) Represents the gross-up of Loans receivable and allowance for credit losses on January 1, 2020 upon the adoption of CECL for the present value of the difference between contractual future net cash flows and expected future net cash flows discounted at the effective interest rate.

(2) The Dealer Loans amount represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program. The Purchased Loans amount represents one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program.

(3) Represents repayments that we collected on Consumer Loans assigned under our programs.

(4) Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance and related allowance for credit losses balance to Purchased Loans in the period this forfeiture occurs.

(5) The Dealer Loans amount represents net cash flows received (collections less any related Dealer Holdback payments) on Dealer Loans that were previously written off in full. The Purchased Loans amount represents collections received on Purchased Loans that were previously written off in full .

Under CECL, which we adopted on January 1, 2020, we are required to recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that were not expected to be realized at the time of assignment. Under both CECL and our prior accounting method, we also recognize provision for credit losses for forecast changes in the amount and timing of expected future net cash flows subsequent to assignment. The following table summarizes the provision for credit losses for each of these components:

(In millions)						For the Year Ended December 31, 2020
Provision for Credit Losses						Dealer Loans						Purchased Loans						Total
New Consumer Loan assignments						$	209.7					$	308.9					$	518.6
Forecast changes						30.0						8.3						38.3
Total						$	239.7					$	317.2					$	556.9

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The net Loan income (finance charge revenue less provision for credit losses expense) that we will recognize over the life of a Loan equals the cash we collect from the underlying Consumer Loan less the cash we pay to the Dealer. While the total amount of net Loan income we will recognize over the life of the Loan is not impacted by the adoption of CECL on January 1, 2020, the timing of when we will recognize this income changes significantly from our prior accounting method, as CECL requires us to recognize a significant provision for credit losses expense at the time of assignment for amounts we never expected to realize and finance charge revenue in subsequent periods that significantly exceeds our expected yields. Additional information related to new Consumer Loan assignments is as follows:

(In millions)						For the Year Ended December 31, 2020
New Consumer Loan Assignments						Dealer Loans						Purchased Loans						Total
Contractual net cash flows at the time of assignment (1)						$	3,506.9					$	3,151.2					$	6,658.1
Expected net cash flows at the time of assignment (2)						3,113.4						2,018.2						5,131.6
Loans receivable at the time of assignment (3)						2,207.8						1,433.4						3,641.2
Provision for credit losses expense at the time of assignment						$	( 209.7 )					$	( 308.9 )					$	( 518.6 )
Expected future finance charges at the time of assignment (4)						1,115.3						893.7						2,009.0
Expected net Loan income at the time of assignment (5)						$	905.6					$	584.8					$	1,490.4

(In millions)						For the Year Ended December 31, 2019
New Consumer Loan Assignments						Dealer Loans						Purchased Loans						Total
Contractual net cash flows at the time of assignment (1)						$	3,810.6					$	2,953.3					$	6,763.9
Expected net cash flows at the time of assignment (2)						3,396.1						1,908.9						5,305.0
Loans receivable at the time of assignment (3)						2,424.5						1,347.7						3,772.2
Provision for credit losses expense at the time of assignment						$	—					$	—					$	—
Expected future finance charges at the time of assignment (4)						971.6						561.2						1,532.8
Expected net Loan income at the time of assignment (5)						$	971.6					$	561.2					$	1,532.8

(In millions)						For the Year Ended December 31, 2018
New Consumer Loan Assignments						Dealer Loans						Purchased Loans						Total
Contractual net cash flows at the time of assignment (1)						$	3,827.4					$	2,610.7					$	6,438.1
Expected net cash flows at the time of assignment (2)						3,405.0						1,669.4						5,074.4
Loans receivable at the time of assignment (3)						2,414.8						1,181.0						3,595.8
Provision for credit losses expense at the time of assignment						$	—					$	—					$	—
Expected future finance charges at the time of assignment (4)						990.2						488.4						1,478.6
Expected net Loan income at the time of assignment (5)						$	990.2					$	488.4					$	1,478.6

(1) The Dealer Loans amount represents repayments that we were contractually owed at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we would be required to make if we collected all of the contractual repayments. The Purchased Loans amount represents repayments that we were contractually owed at the time of assignment on Consumer Loans assigned under our Purchase Program.

(2) The Dealer Loans amount represents repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we expected to make. The Purchased Loans amount represents repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Purchase Program.

(3) The Dealer Loans amount represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program. The Purchased Loans amount represents one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program. The Loan amounts also represent the fair value at the time of assignment.

(4) Represents revenue that is expected to be recognized on a level-yield basis over the lives of the Loans.

(5) Represents the amount that expected net cash flows at the time of assignment (2) exceed Loans receivable at the time of assignment (3).

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A summary of changes in expected future net cash flows is as follows:

(In millions)						For the Year Ended December 31, 2020
Expected Future Net Cash Flows						Dealer Loans						Purchased Loans						Total
Balance, beginning of period						$	5,577.0					$	3,428.2					$	9,005.2
New Consumer Loan assignments (1)						3,113.4						2,018.2						5,131.6
Realized net cash flows (2)						( 2,870.6 )						( 1,682.3 )						( 4,552.9 )
Forecast changes						( 41.1 )						( 5.2 )						( 46.3 )
Transfers (3)						( 114.4 )						121.2						6.8
Balance, end of period						$	5,664.3					$	3,880.1					$	9,544.4

(In millions)						For the Year Ended December 31, 2019
Expected Future Net Cash Flows						Dealer Loans						Purchased Loans						Total
Balance, beginning of period						$	5,045.9					$	2,782.9					$	7,828.8
New Consumer Loan assignments (1)						3,396.1						1,908.9						5,305.0
Realized net cash flows (2)						( 2,749.7 )						( 1,402.5 )						( 4,152.2 )
Forecast changes						( 7.9 )						22.5						14.6
Transfers (3)						( 107.4 )						116.4						9.0
Balance, end of period						$	5,577.0					$	3,428.2					$	9,005.2

(In millions)						For the Year Ended December 31, 2018
Expected Future Net Cash Flows						Dealer Loans						Purchased Loans						Total
Balance, beginning of period						$	4,240.7					$	2,044.4					$	6,285.1
New Consumer Loan assignments (1)						3,405.0						1,669.4						5,074.4
Realized net cash flows (2)						( 2,507.8 )						( 1,073.0 )						( 3,580.8 )
Forecast changes						2.0						40.3						42.3
Transfers (3)						( 94.0 )						101.8						7.8
Balance, end of period						$	5,045.9					$	2,782.9					$	7,828.8

(1) The Dealer Loans amount represents repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we expected to make. The Purchased Loans amount represents repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Purchase Program.

(2) The Dealer Loans amount represents repayments that we collected on Consumer Loans assigned under our Portfolio Program, less the Dealer Holdback and Accelerated Dealer Holdback payments that we made. Purchased Loans amount represents repayments that we collected on Consumer Loans assigned under our Purchase Program.

(3) Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance, related allowance for credit losses balance and related expected future net cash flows to Purchased Loans in the period this forfeiture occurs.

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Credit Quality

We monitor and evaluate the credit quality of Consumer Loans assigned under our Portfolio and Purchase Programs on a monthly basis by comparing our current forecasted collection rates to our prior forecasted collection rates and our initial expectations. For additional information regarding credit quality, see Note 2 to the consolidated financial statements. The following table compares our forecast of Consumer Loan collection rates as of December 31, 2020, with the forecasts as of December 31, 2019, as of December 31, 2018, and at the time of assignment, segmented by year of assignment:

						Total Loans as of December 31, 2020
						Forecasted Collection Percentage as of (1)																								Current Forecast Variance from
Consumer Loan Assignment Year						December 31, 2020						December 31, 2019						December 31, 2018						Initial Forecast						December 31, 2019						December 31, 2018						Initial Forecast
2011						74.8		%				74.8		%				74.7		%				72.5		%				0.0		%				0.1		%				2.3		%
2012						73.8		%				73.9		%				73.8		%				71.4		%				- 0.1		%				0.0		%				2.4		%
2013						73.4		%				73.5		%				73.5		%				72.0		%				- 0.1		%				- 0.1		%				1.4		%
2014						71.6		%				71.7		%				71.7		%				71.8		%				- 0.1		%				- 0.1		%				- 0.2		%
2015						65.2		%				65.4		%				65.4		%				67.7		%				- 0.2		%				- 0.2		%				- 2.5		%
2016						63.6		%				64.1		%				64.2		%				65.4		%				- 0.5		%				- 0.6		%				- 1.8		%
2017						64.1		%				64.8		%				65.5		%				64.0		%				- 0.7		%				- 1.4		%				0.1		%
2018						64.0		%				65.1		%				65.0		%				63.6		%				- 1.1		%				- 1.0		%				0.4		%
2019						64.4		%				64.6		%				—						64.0		%				- 0.2		%				—						0.4		%
2020						64.8		%				—						—						63.4		%				—						—						1.4		%

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						Dealer Loans as of December 31, 2020
						Forecasted Collection Percentage as of (1) (2)																								Current Forecast Variance from
Consumer Loan Assignment Year						December 31, 2020						December 31, 2019						December 31, 2018						Initial Forecast						December 31, 2019						December 31, 2018						Initial Forecast
2011						74.6		%				74.6		%				74.6		%				72.4		%				0.0		%				0.0		%				2.2		%
2012						73.6		%				73.7		%				73.7		%				71.3		%				- 0.1		%				- 0.1		%				2.3		%
2013						73.4		%				73.4		%				73.4		%				72.1		%				0.0		%				0.0		%				1.3		%
2014						71.5		%				71.6		%				71.6		%				71.9		%				- 0.1		%				- 0.1		%				- 0.4		%
2015						64.5		%				64.8		%				64.6		%				67.5		%				- 0.3		%				- 0.1		%				- 3.0		%
2016						62.8		%				63.2		%				63.3		%				65.1		%				- 0.4		%				- 0.5		%				- 2.3		%
2017						63.4		%				64.2		%				64.8		%				63.8		%				- 0.8		%				- 1.4		%				- 0.4		%
2018						63.5		%				64.7		%				64.7		%				63.6		%				- 1.2		%				- 1.2		%				- 0.1		%
2019						64.1		%				64.4		%				—						63.9		%				- 0.3		%				—						0.2		%
2020						64.5		%				—						—						63.3		%				—						—						1.2		%

						Purchased Loans as of December 31, 2020
						Forecasted Collection Percentage as of (1) (2)																								Current Forecast Variance from
Consumer Loan Assignment Year						December 31, 2020						December 31, 2019						December 31, 2018						Initial Forecast						December 31, 2019						December 31, 2018						Initial Forecast
2011						76.4		%				76.4		%				76.3		%				72.7		%				0.0		%				0.1		%				3.7		%
2012						75.9		%				75.9		%				75.9		%				71.4		%				0.0		%				0.0		%				4.5		%
2013						74.3		%				74.4		%				74.3		%				71.6		%				- 0.1		%				0.0		%				2.7		%
2014						72.4		%				72.5		%				72.6		%				70.9		%				- 0.1		%				- 0.2		%				1.5		%
2015						68.8		%				69.3		%				69.5		%				68.5		%				- 0.5		%				- 0.7		%				0.3		%
2016						65.8		%				66.6		%				66.8		%				66.5		%				- 0.8		%				- 1.0		%				- 0.7		%
2017						65.6		%				66.3		%				67.0		%				64.6		%				- 0.7		%				- 1.4		%				1.0		%
2018						65.1		%				66.0		%				65.6		%				63.5		%				- 0.9		%				- 0.5		%				1.6		%
2019						65.1		%				65.1		%				—						64.2		%				0.0		%				—						0.9		%
2020						65.4		%				—						—						63.6		%				—						—						1.8		%

(1) Represents the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment.  Contractual repayments include both principal and interest. Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates in the table.

(2) The forecasted collection rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time of assignment.

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We evaluate and adjust the expected collection rate of each Consumer Loan subsequent to assignment primarily through the monitoring of consumer payment behavior. The following table summarizes the past-due status of Consumer Loan assignments segmented by year of assignment:

(In millions)						Total Loans as of December 31, 2020 (1) (2)
						Pre-term Consumer Loans (3)																		Post-term Consumer Loans (4)						Total
Consumer Loan Assignment Year						Current (5)						Past Due 11-90 Days						Past Due Over 90 Days
2015 and prior						$	4.8					$	2.2					$	16.1					$	99.0					$	122.1
2016						73.5						29.1						119.3						41.7						263.6
2017						320.9						121.0						277.5						7.2						726.6
2018						962.8						374.6						513.9						1.0						1,852.3
2019						1,985.2						745.6						610.8						—						3,341.6
2020						3,002.0						663.8						152.8						—						3,818.6
						$	6,349.2					$	1,936.3					$	1,690.4					$	148.9					$	10,124.8

(In millions)						Dealer Loans as of December 31, 2020 (1)
						Pre-term Consumer Loans (3)																		Post-term Consumer Loans (4)						Total
Consumer Loan Assignment Year						Current (5)						Past Due 11-90 Days						Past Due Over 90 Days
2015 and prior						$	2.1					$	1.0					$	7.9					$	76.1					$	87.1
2016						31.9						12.3						55.7						31.1						131.0
2017						170.5						62.7						143.3						5.1						381.6
2018						523.3						197.5						267.4						0.7						988.9
2019						1,046.9						383.5						310.2						—						1,740.6
2020						2,009.5						433.1						97.8						—						2,540.4
						$	3,784.2					$	1,090.1					$	882.3					$	113.0					$	5,869.6

(In millions)						Purchased Loans as of December 31, 2020 (2)
						Pre-term Consumer Loans (3)																		Post-term Consumer Loans (4)						Total
Consumer Loan Assignment Year						Current (5)						Past Due 11-90 Days						Past Due Over 90 Days
2015 and prior						$	2.7					$	1.2					$	8.2					$	22.9					$	35.0
2016						41.6						16.8						63.6						10.6						132.6
2017						150.4						58.3						134.2						2.1						345.0
2018						439.5						177.1						246.5						0.3						863.4
2019						938.3						362.1						300.6						—						1,601.0
2020						992.5						230.7						55.0						—						1,278.2
						$	2,565.0					$	846.2					$	808.1					$	35.9					$	4,255.2

(1) As Consumer Loans are aggregated by Dealer for purposes of recognizing revenue and measuring credit losses, the Dealer Loan amount was estimated by allocating the balance of each Dealer Loan to the underlying Consumer Loans based on the forecasted future collections of each Consumer Loan.

(2) As certain Consumer Loans are aggregated by Dealer or month of purchase for purposes of recognizing revenue and measuring credit losses, the Purchased Loan amount was estimated by allocating the balance of certain Purchased Loans to the underlying Consumer Loans based on the forecasted future collections of each Consumer Loan.

(3) Represents the Loan balance attributable to Consumer Loans outstanding within their initial loan terms.

(4) Represents the Loan balance attributable to Consumer Loans outstanding beyond their initial loan terms.

(5) We consider a Consumer Loan to be current for purposes of forecasting expected collection rates if contractual repayments are less than 11 days past due .

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COVID-19 continues to be widespread in the United States. In an effort to contain the virus, authorities have implemented various measures, including travel bans, stay-at-home orders and shutdowns of non-essential businesses. These measures have caused a significant decline in economic activity and a dramatic increase in unemployment. While the prevalence, severity and impact of such restrictions have lessened and unemployment rates have improved, uncertainty remains as to when economic conditions will return to normalcy and whether further restrictions may be required. Starting in mid-March, we experienced a substantial reduction in demand for our product and a significant decline in cash flows from our Loan portfolio that lasted through mid-April, after which collections and new loan volumes improved significantly. Starting in late July and continuing through the end of the year, we experienced another substantial reduction in demand for our product. As the virus is not yet fully contained, the ultimate impact of the pandemic on our business is not yet known. The impact will depend on future developments, including, but not limited to, the duration of the pandemic, its severity, the actions to contain the disease or mitigate its impact, additional federal stimulus measures and enhanced unemployment benefits, if any, and the duration, timing and severity of the impact on consumer behavior and economic activity.

During the first quarter of 2020, we reduced our estimate of future net cash flows from our Loan portfolio by $ 206.5 million, or 2.3 % of the forecasted net cash flows at the start of the period, primarily due to the impact of the COVID-19 pandemic. The reduction was comprised of: (1) $ 44.3 million calculated by our forecasting model, which reflected lower realized collections during the first quarter of 2020 and (2) an additional $ 162.2 million, which represented our best estimate of the future impact of the COVID-19 pandemic on future net cash flows. Under CECL, changes in the amount and timing of forecasted net cash flows are recorded as a provision for credit losses in the current period. While the adjustment to our forecast, which we continued to apply through the end of 2020, represents our best estimate at this time, the COVID-19 pandemic has created conditions that increase the level of uncertainty associated with our estimate of the amount and timing of future net cash flows from our Loan portfolio.

Additional Prior Year Loan Disclosures

The adoption of CECL on January 1, 2020 eliminated the following disclosures for 2020 that were required in prior years.

The excess of expected net cash flows over the outstanding balance of Loans receivable, net is referred to as the accretable yield and is recognized on a level-yield basis as finance charge income over the remaining lives of the Loans. A summary of changes in the accretable yield is as follows:

(In millions)			For the Year Ended December 31, 2019
			Dealer Loans						Purchased Loans						Total
Balance, beginning of period			$	1,283.0					$	782.5					$	2,065.5
New Consumer Loan assignments (1)			971.6						561.2						1,532.8
Accretion (2)			( 897.5 )						( 480.7 )						( 1,378.2 )
Provision for credit losses			65.9						10.5						76.4
Forecast changes			( 7.9 )						22.5						14.6
Transfers (3)			( 33.3 )						42.2						8.9
Balance, end of period			$	1,381.8					$	938.2					$	2,320.0
(In millions)			For the Year Ended December 31, 2018
			Dealer Loans						Purchased Loans						Total
Balance, beginning of period			$	1,088.6					$	576.9					$	1,665.5
New Consumer Loan assignments (1)			990.2						488.4						1,478.6
Accretion (2)			( 816.3 )						( 369.3 )						( 1,185.6 )
Provision for credit losses			48.0						8.9						56.9
Forecast changes			2.0						40.3						42.3
Transfers (3)			( 29.5 )						37.3						7.8
Balance, end of period			$	1,283.0					$	782.5					$	2,065.5

(1) The Dealer Loans amount represents the net cash flows expected at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related advances paid to Dealers. The Purchased Loans amount represents the net cash flows expected at the time of assignment on Consumer Loans assigned under our Purchase Program, less the related one-time payments made to Dealers.

(2) Represents finance charges excluding the amortization of deferred direct origination costs for Dealer Loans.

(3) Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance, the related allowance for credit losses balance and related expected future net cash flows to Purchased Loans in the period this forfeiture occurs.

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Advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program are aggregated into pools for purposes of recognizing revenue and measuring credit losses. As a result of this aggregation, we are not able to segment the carrying amounts of the majority of our Loan portfolio by year of assignment. We are able to segment our Loan portfolio by the performance of the Loan pools. Performance considers both the amount and timing of expected net cash flows and is measured by comparing the balance of the Loan pool to the discounted value of the expected future net cash flows of each Loan pool using the yield established at the time of assignment. The following table segments our Loan portfolio by the performance of the Loan pools:

(In millions)			As of December 31, 2019
			Loan Pool Performance Meets or Exceeds Initial Estimates																		Loan Pool Performance Less than Initial Estimates
			Dealer Loans						Purchased Loans						Total						Dealer Loans						Purchased Loans						Total
Loans receivable			$	1,591.3					$	2,006.9					$	3,598.2					$	3,032.0					$	591.0					$	3,623.0
Allowance for credit losses			—						—						—						( 428.0 )						( 108.0 )						( 536.0 )
Loans receivable, net			$	1,591.3					$	2,006.9					$	3,598.2					$	2,604.0					$	483.0					$	3,087.0

Property and equipment consists of the following:

(In millions)			As of December 31,
			2020						2019
Land and land improvements			$	2.9					$	2.7
Building and improvements			59.3						54.5
Data processing equipment and software			41.1						41.3
Office furniture and equipment			3.4						3.9
Leasehold improvements			2.3						2.4
Total property and equipment			109.0						104.8
Less: Accumulated depreciation on property and equipment			( 49.6 )						( 45.1 )
Total property and equipment, net			$	59.4					$	59.7

Depreciation expense on property and equipment was $ 8.8 million, $ 7.3 million and $ 5.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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A summary of reinsurance activity is as follows:

(In millions)			For the Years Ended December 31,
			2020						2019						2018
Net assumed written premiums			$	61.7					$	51.8					$	55.8
Net premiums earned			57.3						51.0						46.6
Provision for claims			37.9						30.1						26.0
Amortization of capitalized acquisition costs			1.4						1.3						1.2

The trust assets and related reinsurance liabilities are as follows:

(In millions)									As of December 31,
			Balance Sheet location						2020						2019
Trust assets			Restricted cash and cash equivalents						$	0.7					$	0.9
Trust assets			Restricted securities available for sale						66.1						59.3
Unearned premium			Accounts payable and accrued liabilities						48.5						44.1
Claims reserve (1)			Accounts payable and accrued liabilities						2.3						1.8

(1) The claims reserve represents our liability for incurred-but-not-reported claims and is estimated based on historical claims experience.

The following tables present information about incurred and paid claims development for the five-year period ended December 31, 2020:

(Dollars in millions)
						Cumulative Incurred Claims																														As of December 31, 2020
Incident Year						As of December 31,																														Claims Reserve						Cumulative Number of Reported Claims
						2016						2017						2018						2019						2020
2016						$	25.7					$	26.0					$	26.0					$	26.0					$	26.0					$	—					25,215
2017												22.3						22.5						22.6						22.6						—						20,462
2018																		25.8						25.7						25.8						—						22,309
2019																								30.1						30.2						—						24,411
2020																														37.7						2.3						27,404
Total																														$	142.3					$	2.3					119,801

(In millions)						Cumulative Paid Claims
						As of December 31,
Incident Year						2016						2017						2018						2019						2020
2016						$	24.7					$	26.0					$	26.0					$	26.0					$	26.0
2017												21.3						22.5						22.6						22.6
2018																		24.2						25.7						25.8
2019																								28.3						30.2
2020																														35.4
Total																														$	140.0

Average Annual Percentage Payout of Incurred Claims by Age
Claim Age (Years)						1						2						3						4						5
Payout Percentage						94.0		%				5.7		%				0.3		%				—		%				—		%

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Other income consists of the following:

(In millions)			For the Years Ended December 31,
			2020						2019						2018
Ancillary product profit sharing			$	33.5					$	37.9					$	30.6
Remarketing fees			7.1						12.0						11.2
Dealer enrollment fees			3.0						4.7						4.3
Interest			2.9						8.5						5.0
Dealer support products and services			1.9						2.5						4.1
GPS-SID fees			—						1.9						6.4
Other			1.2						1.1						0.8
Total			$	49.6					$	68.6					$	62.4

Ancillary product profit sharing consists of payments received from Third Party Providers (“TPPs”) based upon the performance of vehicle service contracts and Guaranteed Asset Protection (“GAP”) contracts, and is recognized as income over the life of the vehicle service contracts and GAP contracts.

Remarketing fees consist of fees retained from the sale of repossessed vehicles by Vehicle Remarketing Services, Inc. (“VRS”), our wholly-owned subsidiary that is responsible for remarketing vehicles for Credit Acceptance. VRS coordinates vehicle repossessions with a nationwide network of repossession contractors, the redemption of the vehicles by the consumers, and the sale of the vehicles through a nationwide network of vehicle auctions. VRS recognizes income from the retained fees at the time of the sale and does not retain a fee if a repossessed vehicle is redeemed by the consumer prior to the sale.

Dealer enrollment fees include fees from Dealers that enrolled in our Portfolio Program prior to August 5, 2019. Depending on the enrollment option selected by the Dealer, Dealers may have enrolled by paying us an upfront, one-time fee, or by agreeing to allow us to retain 50 % of their accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments. For additional information regarding program enrollment, see Note 2 to the consolidated financial statements. A portion of the $ 9,850 upfront, one-time fee is considered to be Dealer support products and services revenue. The remaining portion of the $ 9,850 fee is considered to be a Dealer enrollment fee, which is amortized on a straight-line basis over the estimated life of the Dealer relationship. The 50 % portion of the accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments is also considered to be a Dealer enrollment fee.  We do not recognize any of this Dealer enrollment fee until the Dealer has met the eligibility requirements to receive an accelerated Dealer Holdback payment and the amount of the first payment, if any, has been calculated. Once an accelerated Dealer Holdback payment has been calculated, we defer the 50 % portion that we keep and recognize it on a straight-line basis over the remaining estimated life of the Dealer relationship. Beginning August 5, 2019, Dealers may enroll in our Portfolio Program without incurring an enrollment fee.

Interest consists of income earned on cash and cash equivalents, restricted cash and cash equivalents, and restricted securities available for sale. Interest income is generally recognized over time as it is earned.  Interest income on restricted securities available for sale is recognized over the life of the underlying financial instruments using the interest method.

Dealer support products and services consist of income earned from products and services provided to Dealers to assist with their operations, including sales and marketing, purchasing supplies and materials and acquiring vehicle inventory. Income is recognized in the period the product or service is provided.

GPS-SID fees consist of fees we received from a TPP for providing Dealers in certain states the ability to purchase GPS Starter Interrupt Devices (“GPS-SID”). Through this program, Dealers could install GPS-SID on vehicles financed by us that can be activated if the consumer fails to make payments on their account, and can result in the prompt repossession of the vehicle.  Dealers purchased GPS-SID directly from the TPP and the TPP paid us a vendor fee for each device sold. GPS-SID fee income was recognized when the units were sold. Effective during the second quarter of 2019, we no longer provide Dealers the ability to purchase GPS-SID through this program. We allowed Dealers to install previously purchased GPS-SID on vehicles financed by us until September 1, 2019.

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The following table disaggregates our other income by major source of income and timing of the revenue recognition:

(In millions)			For the Year Ended December 31, 2020
			Ancillary product profit sharing						Remarketing fees						Dealer enrollment fees						Interest						Dealer support products and services						Other						Total Other Income
Source of income
Third Party Providers			$	33.5					$	—					$	—					$	2.9					$	—					$	1.2					$	37.6
Dealers			—						7.1						3.0						—						1.9						—						12.0
Total			$	33.5					$	7.1					$	3.0					$	2.9					$	1.9					$	1.2					$	49.6
Timing of revenue recognition
Over time			$	33.5					$	—					$	3.0					$	2.9					$	—					$	—					$	39.4
At a point in time			—						7.1						—						—						1.9						1.2						10.2
Total			$	33.5					$	7.1					$	3.0					$	2.9					$	1.9					$	1.2					$	49.6

Debt consists of the following:

(In millions)						As of December 31, 2020
						Principal Outstanding						Unamortized Debt Issuance Costs						Unamortized Discount						Carrying Amount
Revolving secured line of credit (1)						$	95.9					$	—					$	—					$	95.9
Secured financing (2)						3,728.7						( 17.1 )						—						3,711.6
Senior notes						800.0						( 9.4 )						—						790.6
Mortgage note						10.5						—						—						10.5
Total debt						$	4,635.1					$	( 26.5 )					$	—					$	4,608.6
(In millions)						As of December 31, 2019
						Principal Outstanding						Unamortized Debt Issuance Costs						Unamortized Discount						Carrying Amount
Revolving secured line of credit (1)						$	—					$	—					$	—					$	—
Secured financing (2)						3,355.6						( 15.9 )						—						3,339.7
Senior notes						1,201.8						( 13.2 )						( 0.8 )						1,187.8
Mortgage note						11.3						—						—						11.3
Total debt						$	4,568.7					$	( 29.1 )					$	( 0.8 )					$	4,538.8

(1) Excludes deferred debt issuance costs of $ 3.2 million and $ 3.2 million as of December 31, 2020 and December 31, 2019, respectively, which are included in other assets.

(2) Warehouse facilities and Term ABS.

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General information for each of our financing transactions in place as of December 31, 2020 is as follows:

(Dollars in millions)

Financings

Wholly-owned Subsidiary

Maturity Date

Financing Amount

Interest Rate Basis as of December 31, 2020

Revolving Secured Line of Credit

n/a

06/22/23

$

340.0

(1)

At our option, either LIBOR plus 187.5 basis points or the prime rate plus 87.5 basis points

Warehouse Facility II (2)

CAC Warehouse Funding Corp. II

07/12/22

(3)

$

400.0

LIBOR plus 175 basis points (4)

Warehouse Facility IV (2)

CAC Warehouse Funding LLC IV

07/26/22

(3)

$

300.0

LIBOR plus 200 basis points (4)

Warehouse Facility V (2)

CAC Warehouse Funding LLC V

12/18/23

(5)

$

125.0

LIBOR plus 225 basis points (4)

Warehouse Facility VI (2)

CAC Warehouse Funding LLC VI

09/30/22

(3)

$

75.0

LIBOR plus 200 basis points

Warehouse Facility VII (2)

CAC Warehouse Funding LLC VII

12/16/21

(6)

$

150.0

Commercial paper rate plus 200 basis points (4)

Warehouse Facility VIII (2)

CAC Warehouse Funding LLC VIII

07/26/22

(3)

$

200.0

LIBOR plus 190 basis points (4)

Term ABS 2017-3 (2)

Credit Acceptance Funding LLC 2017-3

10/15/19

(3)

$

350.0

Fixed rate

Term ABS 2018-1 (2)

Credit Acceptance Funding LLC 2018-1

02/17/20

(3)

$

500.0

Fixed rate

Term ABS 2018-2 (2)

Credit Acceptance Funding LLC 2018-2

05/15/20

(3)

$

450.0

Fixed rate

Term ABS 2018-3 (2)

Credit Acceptance Funding LLC 2018-3

08/17/20

(3)

$

398.3

Fixed rate

Term ABS 2019-1 (2)

Credit Acceptance Funding LLC 2019-1

02/15/21

(3)

$

402.5

Fixed rate

Term ABS 2019-2 (2)

Credit Acceptance Funding LLC 2019-2

08/15/22

(7)

$

500.0

Fixed rate

Term ABS 2019-3 (2)

Credit Acceptance Funding LLC 2019-3

11/15/21

(3)

$

351.7

Fixed rate

Term ABS 2020-1 (2)

Credit Acceptance Funding LLC 2020-1

02/15/22

(3)

$

500.0

Fixed rate

Term ABS 2020-2 (2)

Credit Acceptance Funding LLC 2020-2

07/15/22

(3)

$

481.8

Fixed rate

Term ABS 2020-3 (2)

Credit Acceptance Funding LLC 2020-3

10/17/22

(3)

$

600.0

Fixed rate

2024 Senior Notes

n/a

12/31/24

$

400.0

Fixed rate

2026 Senior Notes

n/a

03/15/26

$

400.0

Fixed rate

Mortgage Note (2)

Chapter 4 Properties, LLC

08/06/23

$

12.0

LIBOR plus 150 basis points

(1) The amount of the facility will decrease to $305.0 million on June 22, 2022.

(2) Financing made available only to a specified subsidiary of the Company.

(3) Represents the revolving maturity date. The outstanding balance will amortize after the revolving maturity date based on the cash flows of the pledged assets.

(4) Interest rate cap agreements are in place to limit the exposure to increasing interest rates.

(5) Represents the revolving maturity date. The outstanding balance will amortize after the revolving maturity date and any amounts remaining on December 16, 2025 will be due on that date.

(6) Represents the revolving maturity date. The outstanding balance will amortize after the revolving maturity date and any amounts remaining on December 16, 2023 will be due on that date.

(7) Represents the revolving maturity date. The Company has the option to redeem and retire the indebtedness after the revolving maturity date. If we do not elect this option, the outstanding balance will amortize based on the cash flows of the pledged assets.

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Additional information related to the amounts outstanding on each facility is as follows:

(In millions)			For the Years Ended December 31,
			2020						2019
Revolving Secured Line of Credit
Maximum outstanding principal balance			$	296.6					$	282.9
Average outstanding principal balance			108.3						77.2
Warehouse Facility II
Maximum outstanding principal balance			$	201.0					$	201.0
Average outstanding principal balance			106.7						78.0
Warehouse Facility IV
Maximum outstanding principal balance			$	—					$	100.0
Average outstanding principal balance			—						1.1
Warehouse Facility V
Maximum outstanding principal balance			$	75.0					$	35.0
Average outstanding principal balance			19.1						0.9
Warehouse Facility VI
Maximum outstanding principal balance			$	50.0					$	—
Average outstanding principal balance			18.0						—
Warehouse Facility VII
Maximum outstanding principal balance			$	125.0					$	101.5
Average outstanding principal balance			61.9						7.1
Warehouse Facility VIII
Maximum outstanding principal balance			$	149.0					$	145.3
Average outstanding principal balance			28.2						7.2

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(Dollars in millions)			As of December 31,
			2020						2019
Term ABS 2020-2
Principal balance outstanding			$	481.8					$	—
Loans pledged as collateral			606.6						—
Restricted cash and cash equivalents pledged as collateral			41.1						—
Interest rate			1.65		%				—		%
Term ABS 2020-3
Principal balance outstanding			$	600.0					$	—
Loans pledged as collateral			759.1						—
Restricted cash and cash equivalents pledged as collateral			49.3						—
Interest rate			1.44		%				—		%
2021 Senior Notes
Principal balance outstanding			$	—					$	151.8
Interest rate			—		%				6.125		%
2023 Senior Notes
Principal balance outstanding			$	—					$	250.0
Interest rate			—		%				7.375		%
2024 Senior Notes
Principal balance outstanding			$	400.0					$	400.0
Interest rate			5.125		%				5.125		%
2026 Senior Notes
Principal balance outstanding			$	400.0					$	400.0
Interest rate			6.625		%				6.625		%
Mortgage Note
Principal balance outstanding			$	10.5					$	11.3
Interest rate			1.65		%				3.21		%

Revolving Secured Line of Credit Facility

We have a $ 340.0 million revolving secured line of credit facility with a commercial bank syndicate. The amount of the facility will decrease to $ 305.0 million on June 22, 2022. Borrowings under the revolving secured line of credit facility, including any letters of credit issued under the facility, are subject to a borrowing-base limitation. This limitation equals 80 % of the value of Loans, as defined in the agreement, less a hedging reserve (not exceeding $ 1.0 million), and the amount of other debt secured by the collateral which secures the revolving secured line of credit facility. Borrowings under the revolving secured line of credit facility agreement are secured by a lien on most of our assets.

Warehouse Facilities

We have six Warehouse facilities with total borrowing capacity of $ 1,250.0 million. Each of the facilities is with a different lender or group of lenders. Under each Warehouse facility, we can contribute Loans to our wholly-owned subsidiaries in return for cash and equity in each subsidiary. In turn, each subsidiary pledges the Loans as collateral to lenders to secure financing that will fund the cash portion of the purchase price of the Loans. The financing provided to each subsidiary under the applicable facility is generally limited to the lesser of 80 % of the value of the contributed Loans, as defined in the agreements, plus the restricted cash and cash equivalents pledged as collateral on such Loans or the facility limit.

The financings create indebtedness for which the subsidiaries are liable and which is secured by all the assets of each subsidiary. Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the subsidiaries. Because the subsidiaries are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors.

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The subsidiaries pay us a monthly servicing fee equal to 6 % of the collections received with respect to the contributed Loans. The servicing fee is paid out of the collections. Except for the servicing fee and holdback payments due to Dealers, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full. If a facility is not amortizing, the applicable subsidiary may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied.

Term ABS Financings

We have wholly-owned subsidiaries (the “Funding LLCs”) that have completed secured financing transactions with qualified institutional investors or lenders. In connection with these transactions, we contributed Loans on an arms-length basis to each Funding LLC for cash and the sole membership interest in that Funding LLC. In turn, each Funding LLC, other than that of Term ABS 2019-2, contributed the Loans to a respective trust that issued notes to qualified institutional investors. The Funding LLC for the Term ABS 2019-2 transaction pledged the Loans to a lender. The Term ABS 2017-3, 2018-1, 2018-2, 2018-3, 2019-1, 2019-3, 2020-1, 2020-2 and 2020-3 transactions each consist of three classes of notes.

Each financing at the time of issuance has a specified revolving period during which we are likely to contribute additional Loans to each Funding LLC. Each Funding LLC (other than that of Term ABS 2019-2) will then contribute the Loans to its respective trust. At the end of the applicable revolving period, the debt outstanding under each financing will begin to amortize.

The financings create indebtedness for which the trusts or Funding LLCs are liable and which is secured by all the assets of each trust or Funding LLC. Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the trusts and the Funding LLCs. Because the Funding LLCs are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors. We receive a monthly servicing fee on each financing equal to 6 % of the collections received with respect to the contributed Loans. The fee is paid out of the collections. Except for the servicing fee and Dealer Holdback payments due to Dealers, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full. If a facility is not amortizing, the applicable subsidiary may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied. However, in our capacity as servicer of the Loans, we do have a limited right to exercise a “clean-up call” option to purchase Loans from the Funding LLCs and/or the trusts under certain specified circumstances. For those Funding LLCs with a trust, when the trust’s underlying indebtedness is paid in full, either through collections or through a prepayment of the indebtedness, the trust is to pay any remaining collections over to its Funding LLC as the sole beneficiary of the trust. For all Funding LLCs, after the indebtedness is paid in full, any remaining collections will ultimately be available to be distributed to us as the sole member of the respective Funding LLC.

The table below sets forth certain additional details regarding the outstanding Term ABS financings:

(Dollars in millions)

Term ABS Financings

Close Date

Net Book Value of Loans Contributed at Closing

Revolving Period

Term ABS 2017-3

October 26, 2017

$

437.6

Through October 15, 2019

Term ABS 2018-1

February 22, 2018

625.1

Through February 17, 2020

Term ABS 2018-2

May 24, 2018

562.6

Through May 15, 2020

Term ABS 2018-3

August 23, 2018

500.1

Through August 17, 2020

Term ABS 2019-1

February 21, 2019

503.1

Through February 15, 2021

Term ABS 2019-2

August 28, 2019

625.1

Through August 15, 2022

Term ABS 2019-3

November 21, 2019

439.6

Through November 15, 2021

Term ABS 2020-1

February 20, 2020

625.1

Through February 15, 2022

Term ABS 2020-2

July 23, 2020

602.3

Through July 15, 2022

Term ABS 2020-3

October 22, 2020

750.1

Through October 17, 2022

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Senior Notes

On December 18, 2019, we issued $ 400.0 million aggregate principal amount of 5.125 % senior notes due 2024 (the “2024 senior notes”). The 2024 senior notes were issued pursuant to an indenture, dated as of December 18, 2019, among the Company, as issuer, the Company’s subsidiaries Buyers Vehicle Protection Plan, Inc. and Vehicle Remarketing Services, Inc., as guarantors (collectively, the “Guarantors”), and U.S. Bank National Association, as trustee.

The 2024 senior notes mature on December 31, 2024 and bear interest at a rate of 5.125 % per annum, computed on the basis of a 360-day year composed of twelve 30-day months and payable semi-annually on June 30 and December 31 of each year, beginning on June 30, 2020. We used a portion of the net proceeds from the 2024 senior notes to repurchase or redeem all of the $ 300.0 million outstanding principal amount of our 6.125 % senior notes due 2021 (the “2021 senior notes”), of which $ 148.2 million was repurchased on December 18, 2019 and the remaining $ 151.8 million was redeemed on January 17, 2020. We used the remaining net proceeds from the 2024 senior notes, together with borrowings under our revolving credit facility and cash on hand to the extent available, to redeem in full the $ 250.0 million outstanding principal amount of our 7.375 % senior notes due 2023 (the “2023 senior notes”) on March 15, 2020. During the fourth quarter of 2019, we recognized a pre-tax loss on extinguishment of debt of $ 1.8 million related to the repurchase of the 2021 senior notes in the fourth quarter of 2019 and the irrevocable notice given in December 2019 for the redemption of the remaining 2021 senior notes in the first quarter of 2020. During the first quarter of 2020, we recognized a pre-tax loss on extinguishment of debt of $ 7.4 million related to the redemption of the 2023 senior notes.

On March 7, 2019, we issued $ 400.0 million aggregate principal amount of 6.625 % senior notes due 2026 (the “2026 senior notes”). The 2026 senior notes were issued pursuant to an indenture, dated as of March 7, 2019, among the Company, as issuer, the Guarantors, and U.S. Bank National Association, as trustee.

The 2026 senior notes mature on March 15, 2026 and bear interest at a rate of 6.625 % per annum, computed on the basis of a 360-day year composed of twelve 30-day months and payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2019. We used the net proceeds from the offering of the 2026 senior notes for general corporate purposes, including repayment of outstanding borrowings under our revolving secured line of credit facility.

The 2024 senior notes and 2026 senior notes (the “senior notes”) are guaranteed on a senior basis by the Guarantors, which are also guarantors of obligations under our revolving secured line of credit facility. Other existing and future subsidiaries of ours may become guarantors of the senior notes in the future. The indentures for the senior notes provide for a guarantor of the senior notes to be released from its obligations under its guarantee of the senior notes under specified circumstances.

Mortgage Note

On August 6, 2018, we entered into a $ 12.0 million mortgage note with a commercial bank that is secured by a first mortgage lien on a building acquired by us and an assignment of all leases, rents, revenues and profits under all present and future leases of the building. The note matures on August 6, 2023, and bears interest at LIBOR plus 150 basis points.

Principal Debt Maturities

The scheduled principal maturities of our debt as of December 31, 2020 are as follows:

(In millions)
Year						Revolving Secured Line of Credit Facility						Warehouse Facilities						Term ABS Financings (1)						Senior Notes						Mortgage Note						Total
2021						$	—					$	—					$	1,091.2					$	—					$	0.8					$	1,092.0
2022						—						28.1						1,452.8						—						0.9						1,481.8
2023						95.9						46.9						1,034.7						—						8.8						1,186.3
2024						—						—						75.0						400.0						—						475.0
2025						—						—						—						—						—						—
Thereafter						—						—						—						400.0						—						400.0
Total						$	95.9					$	75.0					$	3,653.7					$	800.0					$	10.5					$	4,635.1

(1) The principal maturities of the Term ABS transactions are estimated based on forecasted collections.

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Debt Covenants

As of December 31, 2020, we were in compliance with our covenants under the revolving secured line of credit facility and our Warehouse facilities, including those that require the maintenance of certain financial ratios and other financial conditions. These covenants require a minimum ratio of (1) our net earnings, adjusted for specified items, before income taxes, depreciation, amortization and fixed charges to (2) our fixed charges, as defined in the agreements. These covenants also limit the maximum ratio of our funded debt less unrestricted cash and cash equivalents to tangible net worth. Additionally, we must maintain consolidated net income, as defined in the agreements, of not less than $ 1 for the two most recently ended fiscal quarters. Some of these covenants may indirectly limit the repurchase of common stock or payment of dividends on common stock. Our Warehouse facilities also contain covenants that measure the performance of the contributed assets.

Our Term ABS financings also contain covenants that measure the performance of the contributed assets. As of December 31, 2020, we were in compliance with all such covenants. As of the end of the year, we were also in compliance with our covenants under the senior notes indentures.

Interest Rate Caps. We utilize interest rate cap agreements to manage the interest rate risk on certain secured financings. The following tables provide the terms of our interest rate cap agreements that were in effect as of December 31, 2020 and 2019:

(Dollars in millions)
As of December 31, 2020
Facility Amount						Facility Name						Purpose						Start						End						Notional						Cap Interest Rate (1)
$	400.0					Warehouse Facility II						Cap Floating Rate						12/2020						07/2022						$	205.0					5.50		%
300.0						Warehouse Facility IV						Cap Floating Rate						05/2017						04/2021						33.3						6.50		%
												Cap Floating Rate						05/2018						04/2021						50.0						6.50		%
												Cap Floating Rate						07/2019						07/2023						216.7						6.50		%
																														300.0
125.0						Warehouse Facility V						Cap Floating Rate						12/2020						01/2026						94.0						5.50		%
150.0						Warehouse Facility VII						Cap Floating Rate						12/2017						11/2021						68.7						5.50		%
												Cap Floating Rate						01/2020						12/2023						81.3						5.50		%
																														150.0
200.0						Warehouse Facility VIII						Cap Floating Rate						08/2019						08/2023						200.0						5.50		%

(Dollars in millions)
As of December 31, 2019
Facility Amount						Facility Name						Purpose						Start						End						Notional						Cap Interest Rate (1)
$	400.0					Warehouse Facility II						Cap Floating Rate						12/2017						12/2020						$	205.0					5.50		%
300.0						Warehouse Facility IV						Cap Floating Rate						05/2017						04/2021						100.0						6.50		%
												Cap Floating Rate						05/2018						04/2021						150.0						6.50		%
												Cap Floating Rate						07/2019						07/2023						50.0						6.50		%
																														300.0
100.0						Warehouse Facility V						Cap Floating Rate						08/2018						08/2023						75.0						6.50		%
150.0						Warehouse Facility VII						Cap Floating Rate						12/2017						11/2021						143.8						5.50		%
200.0						Warehouse Facility VIII						Cap Floating Rate						08/2019						08/2023						200.0						5.50		%

(1) Rate excludes the spread over the corresponding LIBOR or commercial paper rate.

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The interest rate caps have not been designated as hedging instruments.  As of December 31, 2020 and 2019, the interest rate caps had a fair value of $ 0.1 million, as the capped rates were significantly above market rates.

Information related to the effect of derivative instruments not designated as hedging instruments on our consolidated statements of income for the years ended December 31, 2020, 2019 and 2018 is as follows:

(In millions)												Amount of Loss Recognized in Income on Derivatives
Derivatives Not Designated as Hedging Instruments												For the Years Ended December 31,
						Location						2020						2019						2018
Interest rate caps						Interest expense						$	—					$	( 0.1 )					$	( 0.1 )

Income Tax Provision

The income tax provision consists of the following:

(In millions)			For the Years Ended December 31,
			2020						2019						2018
Income before provision for income taxes:			$	549.5					$	855.9					$	755.1
Current provision for income taxes:
Federal			53.8						94.1						110.9
State			6.6						18.7						19.5
			60.4						112.8						130.4
Deferred provision for income taxes:
Federal			57.3						70.7						35.0
State			11.0						14.8						14.3
			68.3						85.5						49.3
Interest and penalties expense:
Interest			( 0.2 )						1.5						1.4
Penalties			—						—						—
			( 0.2 )						1.5						1.4
Provision for income taxes			$	128.5					$	199.8					$	181.1

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Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities consist of the following:

(In millions)			As of December 31,
			2020						2019
Deferred tax assets:
Allowance for credit losses			$	801.4					$	128.3
Stock-based compensation			15.8						15.5
Deferred state net operating loss			4.3						3.6
Other, net			12.3						13.2
Total deferred tax assets			833.8						160.6
Deferred tax liabilities:
Valuation of Loans receivable			1,208.5						471.3
Deferred Loan origination costs			1.6						1.6
Other, net			14.7						10.2
Total deferred tax liabilities			1,224.8						483.1
Net deferred tax liability			$	391.0					$	322.5

The increases in our deferred tax assets and deferred tax liabilities from 2019 to 2020 were primarily due to the adoption of CECL on January 1, 2020, which significantly increased the outstanding balances of Loans receivable and the related allowance for credit losses.

The deferred state net operating loss tax asset arising from the operating loss carryforward for state income tax purposes is expected to expire at various times beginning in 2028, if not utilized. During 2018, we wrote off $ 3.4 million of this deferred tax asset as we determined that we would not be able to utilize a state net operating loss carryforward prior to its expiration. We do not anticipate expiration of the remaining net operating loss carryforwards prior to their utilization.

Effective Income Tax Rate

A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:

			For the Years Ended December 31,
			2020						2019						2018
U.S. federal statutory income tax rate			21.0		%				21.0		%				21.0		%
State income taxes			2.7		%				3.1		%				3.5		%
Excess tax benefits from stock-based compensation plans			- 0.5		%				- 0.9		%				- 0.1		%
Effect of the 2017 Tax Act			—		%				—		%				- 0.7		%
Other			0.2		%				0.1		%				0.3		%
Effective income tax rate			23.4		%				23.3		%				24.0		%

State income taxes

The decrease in our state income tax rate from 2019 to 2020 was primarily the result of the settlement of an uncertain tax position for state income taxes during 2020. The decrease in our state income tax rate from 2018 to 2019 was primarily the result of the write-off of a deferred state net operating loss tax asset during 2018.

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Excess tax benefits from stock-based compensation plans

During the first quarter of each year, we receive a tax benefit upon the vesting of restricted stock and the conversion of restricted stock units to common stock based on the fair value of the shares. The amount by which this tax benefit exceeds the grant-date fair value that was recognized as stock-based compensation expense is referred to as an excess tax benefit. Excess tax benefits are recognized in provision for income taxes and reduce our effective income tax rate. The impact of excess tax benefits on our effective income tax rate decreased in magnitude from 2019 to 2020, and increased in magnitude from 2018 to 2019, primarily due to the number of restricted stock units that were converted to common stock in each period, due to the timing of our long-term stock award grants.

Effect of the 2017 Tax Act

In 2018, we reversed a provisional valuation allowance related to stock-based compensation that we had established in 2017 upon enactment of the 2017 Tax Act, which resulted in a $ 5.5 million reversal of provision for income taxes in 2018.

Unrecognized Tax Benefits

The following table is a summary of changes in gross unrecognized tax benefits:

(In millions)			For the Years Ended December 31,
			2020						2019						2018
Unrecognized tax benefits at January 1,			$	41.7					$	38.7					$	31.9
Additions for tax positions of the current year			10.2						10.0						10.2
Additions for tax positions of prior years			0.1						—						—
Reductions for tax positions of prior years			—						—						—
Settlements			( 4.6 )						( 2.3 )						—
Reductions as a result of a lapse of the statute of limitations			( 5.6 )						( 4.7 )						( 3.4 )
Unrecognized tax benefits at December 31,			$	41.8					$	41.7					$	38.7

The total amount of gross unrecognized tax benefit that, if recognized, would favorably affect our effective income tax rate in future periods, was $ 41.8 million as of December 31, 2020.  Accrued interest related to uncertain tax positions was $ 9.2 million and $ 8.9 million as of December 31, 2020 and 2019, respectively.

We are subject to income tax in federal and state jurisdictions. We are generally no longer subject to tax examinations on federal returns filed for years prior to 2017 and state returns filed for years prior to 2013.

Basic net income per share has been computed by dividing net income by the basic number of weighted average shares outstanding. Diluted net income per share has been computed by dividing net income by the diluted number of weighted average shares outstanding using the treasury stock method.  The share effect is as follows:

			For the Years Ended December 31,
			2020						2019						2018
Weighted average shares outstanding:
Common shares			17,544,837						18,614,719						19,144,785
Vested restricted stock units			314,098						285,537						301,282
Basic number of weighted average shares outstanding			17,858,935						18,900,256						19,446,067
Dilutive effect of restricted stock and restricted stock units			76,844						76,304						86,245
Dilutive number of weighted average shares outstanding			17,935,779						18,976,560						19,532,312

For the years ended December 31, 2020, 2019 and 2018 there were no shares of restricted stock or restricted stock units that were not included in the computation of diluted net income per share because their inclusion would have been anti-dilutive.

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The following table summarizes our stock repurchases for the years ended December 31, 2020, 2019, and 2018:

(Dollars in millions)						For the Years Ended December 31,
						2020												2019												2018
Stock Repurchases						Number of Shares Repurchased						Cost						Number of Shares Repurchased						Cost						Number of Shares Repurchased						Cost
Open Market (1)						1,267,103						$	474.3					669,752						$	282.2					336,743						$	127.1
Other (2)						15,063						6.5						42,696						18.2						6,185						2.0
Total						1,282,166						$	480.8					712,448						$	300.4					342,928						$	129.1

(1) Represents repurchases under authorizations by the board of directors for the repurchase of shares by us from time to time in the open market or in privately negotiated transactions. On March 5, 2020, the board of directors authorized the repurchase of up to three million shares of our common stock in addition to the board’s prior authorizations. As of December 31, 2020, we had authorization to repurchase 2,502,610 shares of our common stock.

(2) Represents shares of common stock released to us by team members as payment of tax withholdings upon the vesting of restricted stock and restricted stock units and the conversion of restricted stock units to common stock.

Pursuant to our Amended and Restated Incentive Compensation Plan (the “Incentive Plan”), we can grant stock-based awards in the form of restricted stock, restricted stock units and stock options to team members, officers, directors, and contractors at any time prior to March 26, 2022. On March 26, 2012, our board of directors approved an amendment to our Incentive Plan, increasing the number of shares authorized for issuance by 500,000 shares, to 2.0 million shares. The shares available for future grants under the Incentive Plan totaled 116,031 as of December 31, 2020, disregarding the stock option grant described below which is subject to shareholder approval of an amendment to the Incentive Plan.

Restricted Stock

We grant performance-based and time-based shares of restricted stock to team members in accordance with our Incentive Plan. The grant-date fair value per share is estimated to equal the market price of our common stock on the date of grant. Based on the terms of individual restricted stock grant agreements, shares vest under one of the following methods:

• Over a period of 15 years, based on continuous employment and a combination of the cumulative improvement in our annual adjusted economic profit, a non-GAAP financial measure, and the attainment of annual adjusted economic profit targets.

• Over a period of three years , based on continuous employment.

A summary of the non-vested restricted stock activity under the Incentive Plan for the year ended December 31, 2020 is presented below:

Restricted Stock						Number of Shares						Weighted Average Grant-Date Fair Value Per Share
Non-vested as of December 31, 2019						137,503						$	125.04
Vested						( 14,633 )						182.61
Forfeited						( 152 )						362.80
Non-vested as of December 31, 2020						122,718						$	117.88

No shares of restricted stock were granted in 2020. The grant-date weighted average fair value of shares granted in 2019 and 2018 was $ 441.54 , and $ 317.87 , respectively.  The total fair value of shares vested was $ 5.1 million in 2020, $ 7.9 million in 2019 and $ 4.8 million in 2018.

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Restricted Stock Units

We grant performance-based and time-based restricted stock units to team members and directors in accordance with our Incentive Plan. The grant-date fair value per share is estimated to equal the market price of our common stock on the date of grant. Each restricted stock unit represents and has a value equal to one share of common stock. Based on the terms of individual restricted stock grant agreements, restricted stock units vest under one of the following methods:

• Over a period of ten years , based on continuous employment and the cumulative improvement in our annual adjusted economic profit.

• Over a period of five years , based upon the compounded annual growth rate in our adjusted economic profit.

• Over a period of one to four years , based on continuous employment and the compounded annual growth rate in our adjusted EPS, a non-GAAP financial measure.

• Over a period of three years , based on continuous employment.

A summary of the restricted stock unit activity under the Incentive Plan for the year ended December 31, 2020, is presented below:

Restricted Stock Units						Number of Restricted Stock Units						Weighted Average Grant-Date Fair Value Per Share						Aggregate Intrinsic Value (2) (in millions)						Weighted Average Remaining Contractual Term (in years)
Outstanding as of December 31, 2019						428,831						$	132.99
Granted						5,870						436.89
Converted						( 21,971 )						105.97
Forfeited						( 128 )						434.60
Outstanding as of December 31, 2020 (1)						412,602						$	138.65					$	142.8					3.6
Vested as of December 31, 2020						320,250						$	132.24					$	110.9					3.2

(1) No RSUs outstanding at December 31, 2020 were convertible to shares of common stock.

(2) The intrinsic value of RSUs is measured by applying the closing stock price as of December 31, 2020 to the applicable number of units.

The grant-date weighted average fair value of RSUs granted in 2020, 2019 and 2018 was $ 436.89 , $ 453.64 , and $ 363.11 , respectively. The total intrinsic value of RSUs converted to common stock during 2020, 2019 and 2018 was $ 7.6 million, $ 36.9 million, and $ 0.5 million, respectively.

Stock-based compensation expense

Stock-based compensation expense consists of the following:

(In millions)			For the Years Ended December 31,
			2020						2019						2018
Restricted stock			$	2.0					$	3.0					$	2.7
Restricted stock units			4.2						4.6						7.6
Total			$	6.2					$	7.6					$	10.3

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While the stock-based awards are often expected to vest in equal, annual installments over the corresponding requisite service periods of the grants, the related stock-based compensation expense is not recognized on a straight-line basis over the same periods. Each installment is accounted for as a separate award and as a result, the fair value of each installment is recognized as stock-based compensation expense on a straight-line basis over the related expected vesting period. Assuming performance targets are achieved in the periods currently estimated, we expect to recognize the remaining expense for stock-based awards outstanding as of December 31, 2020 over a weighted average period of 2.2 years, as follows:

(In millions)
For the Years Ended December 31,						Restricted Stock Units						Restricted Stock						Total Projected Expense
2021						$	1.2					$	1.2					$	2.4
2022						0.3						0.9						1.2
2023						0.1						0.7						0.8
2024						—						0.5						0.5
2025						—						0.3						0.3
Thereafter						—						0.2						0.2
Total						$	1.6					$	3.8					$	5.4

Stock option grant subject to shareholder approval

On December 30, 2020, we granted 622,000 time-based stock options to team members, which are subject to shareholder approval of an amendment to our Incentive Plan at the next Annual Meeting of Shareholders (“Shareholder Approval”). The exercise price of the options is $ 333.94 , which is equal to the closing market price of our common stock on the day prior to the date of the grant. Based on the terms of individual stock option grant agreements, the stock options:

• vest and become exercisable in four equal annual installments beginning on December 30, 2021, which is the first anniversary of the date on which the options were granted, based on continuous employment and

• expire six years from the date of the grant.

Business Segment Overview

We identify operating segments as components of our business for which separate financial information is regularly evaluated by the chief operating decision-maker (“CODM”) in making decisions regarding resource allocation and assessing performance.  We periodically review and redefine our segment reporting as internal management reporting practices evolve and the components of our business change.  Currently, the CODM reviews consolidated financial statements and metrics to allocate resources and assess performance.  Thus, we have determined that we operate in one reportable operating segment.  The consolidated financial statements reflect the financial results of our one reportable operating segment.

Geographic Information

For the three years ended December 31, 2020, 2019 and 2018, all of our revenues were derived from the United States.  As of December 31, 2020 and 2019, all of our long-lived assets were located in the United States.

Products and Services Information

Our primary product consists of financing programs that enable Dealers to sell vehicles to consumers, regardless of their credit history. We also provide Dealers the ability to offer or purchase ancillary products on vehicles financed by us.

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Litigation and Other Legal Matters

In the normal course of business and as a result of the consumer-oriented nature of the industry in which we operate, we and other industry participants are frequently subject to various consumer claims, litigation and regulatory investigations seeking damages, fines and statutory penalties. The claims allege, among other theories of liability, violations of state, federal and foreign truth-in-lending, credit availability, credit reporting, consumer protection, warranty, debt collection, insurance and other consumer-oriented laws and regulations, including claims seeking damages for alleged physical and mental harm relating to the repossession and sale of consumers’ vehicles and other debt collection activities. As the assignee of Consumer Loans originated by Dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against Dealers. We may also have disputes and litigation with Dealers. The claims may allege, among other theories of liability, that we breached our Dealer servicing agreement. We may also have disputes and litigation with vendors and other third parties. The claims may allege, among other theories of liability, that we breached a license agreement or contract. The damages, fines and penalties that may be claimed by consumers, regulatory agencies, Dealers, vendors or other third parties in these types of matters can be substantial. The relief requested by plaintiffs varies but may include requests for compensatory, statutory and punitive damages and injunctive relief, and plaintiffs may seek treatment as purported class actions. Current actions to which we are a party include the following matters.

On October 2, 2020, a shareholder filed a putative class action complaint against the Company, its Chief Executive Officer and its Chief Financial Officer in the United States District Court for the Eastern District of Michigan, Southern Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, based on alleged false and/or misleading statements or omissions regarding the Company and its business, and seeking class certification, unspecified damages plus interest and attorney and expert witness fees and other costs on behalf of a purported class consisting of all persons and entities (subject to specified exceptions) that purchased or otherwise acquired Credit Acceptance common stock from November 1, 2019 through August 28, 2020. We cannot predict the duration or outcome of this lawsuit at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this lawsuit. The Company intends to vigorously defend itself in this matter.

On May 7, 2019, we received a subpoena from the Consumer Frauds and Protection Bureau of the Office of the New York State Attorney General, relating to the Company’s origination and collection policies and procedures in the state of New York. On July 30, 2020, we received two additional subpoenas from the Office of the New York State Attorney General, both from the Consumer Frauds and Protection Bureau and the Investor Protection Bureau, relating to the Company’s origination and collection policies and procedures in the state of New York and its securitizations. On August 28, 2020, we were informed that one of the two additional subpoenas was being withdrawn. On November 16, 2020, we received an additional subpoena for documents from the Office of the New York State Attorney General. On November 19, 2020, the Company received a letter from the Office of the New York State Attorney General stating that the New York State Attorney General is considering bringing claims against the Company under the Dodd-Frank Wall Street Reform and Consumer Protection Act, New York Executive Law § 63(12), the New York Martin Act and New York General Business Law § 349 in connection with the Company’s origination and securitization practices. On December 9, 2020, we responded to the New York State Attorney General’s letter disputing the assertions contained therein. On December 21, 2020, we received two additional subpoenas from the Office of the New York State Attorney General, one relating to data and the other seeking testimony. We are cooperating with the inquiry and cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this investigation.

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On April 22, 2019, we received a civil investigative demand from the Bureau of Consumer Financial Protection (the “Bureau”) seeking, among other things, certain information relating to the Company’s origination and collection of Consumer Loans, TPPs and credit reporting. On May 7, 2020, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation. The Company raised various objections to the May 7, 2020 civil investigative demand, and on May 26, 2020, we were notified that it was withdrawn. On June 1, 2020, we received another civil investigative demand that was similar to the May 7, 2020 demand, and which raised many of the same objections. We formally petitioned the Bureau to modify the June 1, 2020 civil investigative demand. On September 3, 2020, the Director of the Bureau denied our petition to modify the June 1, 2020 civil investigative demand. On December 23, 2020, we received a civil investigative demand for investigational hearings in connection with the Bureau’s investigation. The Company objected to certain portions of the civil investigative demands for hearings and, on January 19, 2021, the Bureau notified the Company that it had withdrawn such portions from the December 23, 2020 civil investigative demands. We continue to cooperate with the investigation, but cannot predict the eventual scope, duration, or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this investigation.

On August 14, 2017, we received a subpoena from the Attorney General of the State of Mississippi, relating to the origination and collection of non-prime auto loans in the state of Mississippi. The Company cooperated with the inquiry. On April 23, 2019, the Attorney General of the State of Mississippi, on behalf of the State of Mississippi, filed a complaint in the Chancery Court of the First Judicial District of Hinds County, Mississippi, alleging that the Company engaged in unfair and deceptive trade practices in subprime auto lending, loan servicing, vehicle repossession and debt collection in the State of Mississippi in violation of the Mississippi Consumer Protection Act. The complaint seeks injunctive relief, including civil penalties and disgorgement, and payment of the State’s attorney’s fees and costs. We cannot predict the duration or outcome of this lawsuit at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this lawsuit. The Company intends to vigorously defend itself in this matter.

On March 18, 2016, we received a subpoena from the Attorney General of the State of Maryland, relating to the Company’s repossession and sale policies and procedures in the state of Maryland. On April 3, 2020, we received a subpoena from the Attorney General of the State of Maryland relating to the Company’s origination and collection policies and procedures in the state of Maryland. On August 11, 2020, we received a subpoena from the Attorney General of the State of Maryland restating most of the requests contained in the March 18, 2016 and April 3, 2020 subpoenas, making additional requests, and expanding the inquiry to include 40 other states (Alabama, Alaska, Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wisconsin) and the District of Columbia. Also on August 11, 2020, we received from the Attorney General of the State of New Jersey a subpoena that is essentially identical to the August 11, 2020 Maryland subpoena, both as to substance and as to the jurisdictions identified. We are cooperating with these inquiries and cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from these investigations.

On December 9, 2014, we received a civil investigative subpoena from the U.S. Department of Justice pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 directing us to produce certain information relating to subprime automotive finance and related securitization activities. We have cooperated with the inquiry, but cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this investigation.

On December 4, 2014, we received a civil investigative demand from the Office of the Attorney General of the Commonwealth of Massachusetts relating to the origination and collection of non-prime auto loans in Massachusetts. On November 20, 2017 we received a second civil investigative demand from the Office of the Attorney General seeking updated information on its original civil investigative demand, additional information related to the Company’s origination and collection of Consumer Loans, and information regarding securitization activities. In connection with this inquiry, we were informed by representatives of the Office of the Attorney General that it believes that the Company may have engaged in unfair and deceptive acts or practices related to the origination and collection of auto loans, which may have caused some of the Company’s representations and warranties contained in securitization documents to be inaccurate. On July 22, 2020, we received a third civil investigative demand from the Office of the Attorney General seeking updates on previously produced data and additional information related to the Company’s origination of Consumer Loans. On August 30, 2020, we were served with a complaint, filed by the Attorney General in Massachusetts Superior Court in Suffolk County, alleging that the Company engaged in unfair and deceptive trade practices in subprime auto lending, debt collection and asset-backed securitizations in the Commonwealth of Massachusetts, in violation of the Massachusetts Consumer Protection Law, M.G.L. c. 93A. The complaint seeks injunctive relief, restitution, disgorgement, civil penalties and payment of the Commonwealth’s attorney’s fees and costs.

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We cannot predict the duration or outcome of this lawsuit at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this lawsuit. The Company intends to vigorously defend itself in this matter.

An adverse ultimate disposition in any action to which we are a party or otherwise subject could have a material adverse impact on our financial position, liquidity and results of operations.

Lease Commitments

We lease office space and office equipment.  We expect that in the normal course of business, leases will be renewed or replaced by other leases.  Total rental expense on all operating leases was $ 1.7 million for 2020, $ 1.8 million for 2019, and $ 2.2 million for 2018.  Contingent rentals under the operating leases were insignificant. Our total minimum future lease commitments under operating leases as of December 31, 2020 are as follows:

(In millions)
Year						Minimum Future Lease Commitments
2021						$	1.2
2022						0.6
2023						—
2024						—
2025						—
Total						$	1.8

The following quarterly financial data for the years ended December 31, 2020 and 2019 has been prepared in accordance with GAAP:

(In millions, except per share data)						2020
						Quarters Ended
Income Statement Data						March 31						June 30						September 30						December 31
Revenue						$	389.1					$	406.3					$	426.5					$	447.4
Income before provision for income taxes						( 112.8 )						127.8						318.4						216.1
Net income						( 83.8 )						96.4						242.1						166.3
Net income per share (1):
Basic						$	( 4.61 )					$	5.40					$	13.57					$	9.47
Diluted						$	( 4.61 )					$	5.40					$	13.56					$	9.43
(In millions, except per share data)						2019
						Quarters Ended
Income Statement Data						March 31						June 30						September 30						December 31
Revenue						$	353.8					$	370.6					$	378.7					$	385.9
Income before provision for income taxes						206.3						215.3						219.1						215.2
Net income						164.4						164.4						165.4						161.9
Net income per share (1):
Basic						$	8.67					$	8.68					$	8.73					$	8.63
Diluted						$	8.65					$	8.68					$	8.73					$	8.60

(1) Basic and diluted net income per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted net income per share.

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On January 29, 2021, we completed a $ 100.0 million Term ABS financing, which was used to repay outstanding indebtedness. The financing will revolve for 24 months, after which it will amortize based upon the cash flows on the contributed Loans.

On January 29, 2021, we extended the date on which our $ 300.0 million Warehouse Facility IV will cease to revolve from July 26, 2022 to November 17, 2023. The interest rate on borrowings under the facility has been increased from LIBOR plus 200 basis points to LIBOR plus 210 basis points.

On February 3, 2021, we extended the date on which our $ 400.0 million Warehouse Facility II will cease to revolve from July 12, 2022 to April 30, 2024.

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